the Help to Buy Mortgage Guarantee scheme – otherwise known as H2B – will soon be celebrating its second birthday, with the second phase of the Government scheme having first launched on 8 October 2013. But just how has the market changed in that time, and have borrowers been able to benefit? We take a closer look.
Well, things have certainly changed in the last two years, and happily for borrowers, it's all been for the better! Our figures show that the 95% loan-to-value (LTV) mortgage market has changed particularly dramatically within that time, as not only are there now far lower rates available for borrowers with small deposits, but there's also far more product choice! Check out the table below to see what we mean:
Total number of 95% LTV products
Average two-year fixed rate mortgage at 95% LTV
Average five-year fixed rate mortgage at 95% LTV
As you can see, the market has substantially expanded over the last two years, with the number of products available rising by almost 600%! Rates have fallen dramatically over the same period, too, so not only can borrowers benefit from a higher level of product choice, but they could have far lower repayments as well.
"The Help to Buy Mortgage Guarantee Scheme has brought many happy returns to small deposit holders," said Charlotte Nelson, finance expert at Moneyfacts. "The scheme was designed to boost lending at 95% LTV, which is often considered the lifeblood of the mortgage market, and two years on, it's clear that it has succeeded, with Treasury figures showing that the number of homes being sold as a result of the guarantee has hit 56,401.
"Borrowers looking at the market today will see that their wish for more choice and greater competitiveness has been granted: rates have fallen dramatically, with the average two-year fixed rate mortgage at 95% LTV falling by 0.65% in just two years."
Much of this improvement could be due to the launch of H2B itself. Prior to the launch of the scheme, lending to those with small deposits had become almost non-existent, largely thanks to fallout from the financial crisis, which meant that providers were reluctant to take on that kind of risk.
Now, however, things have changed. The fact that H2B mortgages are backed by the Government means that the level of risk lenders are taking on has significantly reduced, and as a result, they're more willing to lend to borrowers at this LTV. It acted as a clear catalyst, said Charlotte, "promoting the acceptability of lending at this level again, and at the same time, it also prompted lenders outside of the scheme to drop their rates in order to remain competitive".
Not only that, but improving economic conditions overall mean that confidence has improved, while the fall in mortgage rates as a whole – not to mention the extra precautions granted by the Mortgage Market Review – mean lending at this level is now far more viable.
So, is it time you took advantage of things? Help to Buy has helped transform low-deposit lending, and thanks to the rise in product choice and drop in rates, there's never been a better time to get involved.
However, don't think that a Help to Buy mortgage is the only option if you've got a 5% deposit, because as Charlotte points out, you could well find a better deal elsewhere. For example, our calculations show that by opting for the lowest five-year fixed rate at 95% LTV instead of the lowest Help to Buy rate, the typical borrower could save £308.76 in repayments in just one year.
Given the level of competition, it's important to not be automatically sucked in by Help to Buy branding, and instead you'll want to compare the whole of the market to get the best possible chance of nabbing a low-rate deal. But, whatever you decide to do, make sure to act fast! Average mortgage rates have already started to edge up, and the Help to Buy scheme won't last forever, either.
"If they haven't already, borrowers with small deposits should think about taking advantage of the great rates and numerous deals now," concluded Charlotte. "The Help to Buy Mortgage Guarantee scheme is due to end next year, and only time will tell whether its removal will extinguish the competitive flame in the 95% mortgage market."
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.