The Government’s Help to Buy scheme has helped aspiring buyers onto the property ladder. However, homebuyers should be careful about who they sign up with.
There is as much as a £3,000 difference between the cheapest and most expensive Help to Buy rates on an average home loan.
The system aids buyers access 5% deposit mortgages from participating lenders.
The Government launched the mortgage guarantee scheme in October 2013. The Government then pledges a portion of a low deposit loan in return for a fee from the lender. This means that borrowers can receive mortgages of up to 95% loan-to-value (LTV).
Official figures since the introduction reveal 30,269 households have been brought into the housing market under the scheme.1
Most high street lenders provide Help to Buy rates and some new banking entrants also offer these loans.
However, rates can vary from as low as 4.49% to over 6%, so it is vital that buyers find the best deal.
The first lenders to launch rates under the system were RBS, NatWest, Lloyds, and Halifax. However, all of their offers are now over 5%.
At present, Barclays are offering the lowest Help to Buy mortgage rate, with a two-year fixed deal at 4.49% with a £499 fee for a 5% deposit. A 25-year £150,000 mortgage would cost £832 a month and £20,488 over the two years.
Contrastingly, Aldermore provides a two-year fixed rate at 6.09%. The same mortgage here would cost £974 a month and £23,393 over the two years. This is a huge difference of around £2,905.
A spokesperson at Aldermore said that their pricing reflects the risks associated with high LTV lending.1
HSBC also has a competitive two-year fixed rate of 4.59% with a £99 fee. A 25-year £150,000 mortgage would cost £841 a month and £20,293 over the two years.
The Post Office offers a two-year fixed rate at 4.75%. The same mortgage would cost £855 a month and £20,524 for the two years.
Five-year fixed rates
Barclays also offers a five-year fixed rate of 4.99% with a £499 fee. A £150,000 mortgage would cost £876 a month and £53,059 over five years.
However, Virgin Money, a new banking entrant, beats this. Their fee-free rate at 4.99% also offers £300 cash back. The £150,000 mortgage would cost £52,560 over five years. This is £499 cheaper than Barclays, before the cash back.
Outside Help to Buy
Without using the Help to Buy scheme, buyers can get a two-year fee-free fixed rate of 4.99% at Norwich & Peterborough. However, this is more expensive than the lowest Help to Buy deals. A 25-year £150,000 mortgage would be £876 a month and £21,024 over two years.
A longer-term five-year fixed rate at Monmouthshire Building Society is 4.59%. The same mortgage would be £841 a month and £50,485 over five years. This is cheaper than the Help to Buy rates.