Mortgage News

The Government is set to replace the existing Help to Buy Equity Loan scheme with a new scheme that is restricted to first-time buyers only and introduces regional price limits.

The new Help to Buy Equity Loan (2021-2023) is due to replace the existing scheme on 1 April 2021, which means that existing homeowners wanting to use the existing Help to Buy Equity Loan scheme to help towards buying a new home have less than five months to apply for the scheme.

The current scheme allows both first-time buyers and homeowners to use the Government-backed Help to Buy Equity Loan to buy a new-build home. The launch of the new scheme will result in just first-time buyers being able to apply for the loan, which must be used towards buying a new-build home.

Under the new scheme, first-time buyers will still be able to borrow up to 20% (40% in London) of the cost of a newly built home. The buyer must pay a minimum of 5% deposit for the home and then use a help to buy mortgage to fund the remaining cost of the property. The loan is interest-free for the first five years and then interest fees start at 1.75% and rise each year in April by the Consumer Prices Index plus 2%. Borrowers are also charged a monthly management fee of £1 for the term of the loan.

Along with restricting the new loan to first-time buyers only, the Government has also introduced regional price caps, which means that homes eligible for the loan have to below the set maximum price. The price caps are:

First-time buyers wanting to use the Help to Buy: Equity Loan (2021-2023) can reserve their new home using the scheme from 16 December 2020, but they cannot get the keys to move in until the 1 April 2021.

Commenting on the launch of the new scheme, Will German, director of Help to Buy at Homes England, said: “Help to Buy has already helped more than 270,000 people into home ownership and 82% are first-time buyers. The new Help to Buy builds on this success, with first-time buyers in front of mind.

“We’re pleased we can help homebuyers with smaller deposits to own a home, at a time where there are fewer options open to them. Housing, like most sectors, has experienced a slowdown during the Covid-crisis. But Help to Buy continues to give homebuilders the confidence to keep on building at a more crucial time than ever.”

The cost of getting a mortgage has risen since March, with average product fees increasing while the number of deals with no product fees or offering free valuations falling.

Research carried out by Moneyfacts.co.uk has found that the average product fee has risen from £1,040 in March to £1,078 at the start of November. As well as this, during this same time period, the proportion of deals with no product fees has fallen, from 40% of deals in the market in March to 34% of deals in November, along with the percentage of deals offering free or refunded valuations, which fell from 71% of the market to 69% of deals in the market. This means that at the beginning of November, there were just 705 mortgage deals that do not charge product fees and 1,414 offering free or refunded valuations.

There was some good news for mortgage borrowers however, as the percentage of deals offering free or refunded legal fees has increased since March. In March, 49% of deals within the market offered free or refunded legal fees, which increased to 54% in November, which means that in November 1,115 of deals offer free or refunded legal fees.

Commenting on the increase in average product fees, Eleanor Williams, finance expert at Moneyfacts.co.uk said: “The average fee charged on a fixed rate mortgage deal (excluding products with no fee) has increased for the fifth consecutive month, and at £1,078 is the highest on Moneyfacts’ records since November 2012, when it reached £1,095. This may be a result of lenders raising fees as a means to gain additional margins in an environment where these were already slim following the significant fixed rate war of recent years.

“Those who are looking to limit any outlay involved in taking on a new mortgage should note that the proportion of the fixed rate market where there are no fees payable has fallen slightly. At 34%, this is 6% lower than the percentage of the market that offered this type of deal in June and 8% lower than November last year, but it is positive to see that despite the reduction, fee-free fixed deals are still available.”

The best rates in the mortgage market remain unchanged this week and those still deciding on the best mortgage for them will find they can still get some of the best rates available last week. However, borrowers should also be aware that average mortgage rates are increasing, so those lenders with the very best deals may decide to increase their rates in line with the rest of the market. Lenders are also taking on average around 16 weeks (115 days) to complete mortgages for those wanting to move home, according to mortgage firm Trussle, so those want to benefit from the stamp duty holiday ending in March next year need to start their applications sooner rather than later.

Although we have highlighted the lowest rates available in the mortgage charts, when looking at mortgage deals, it is important to remember that the lowest rate on offer may not be the best deal for individual circumstances. Instead, borrowers should consider a range of factors, including product fees, incentives and flexible features.
All mortgages shown are available at 60% loan-to-value (LTV) unless indicated otherwise.