Phase 2 of the help to buy scheme may prove expensive for borrowers!

by Mark Johnston

Phase 2 of the help to buy scheme may prove expensive for borrowers!

For many young people nowadays, the dream of owning their own property looked set to stay just a dream. But that was before the government launched its help to buy scheme!

Prime Minister David Cameron says that he” hopes the scheme will make the dream of home ownership a reality for many who would otherwise have been shut out.”

Homes_1542734cGovernment money will be used to guarantee up to 15 per cent of a house purchase price up to £600,000, while the buyer will be expected to come up with a cash deposit of 5 per cent.

The vast majority of homes in the region are under £600,000, meaning that a significant amount of purchasers will be looking to buy homes that are eligible for the scheme.

Recent statistics have revealed that more than 660,000 homes across the country, both old and new builds are eligible under the £12 billion scheme.

While the scheme is open to some existing home owners, first time buyers are expected to benefit most.

The Royal Bank of Scotland and NatWest have recently announced they are offering two and five year fixed rate deals at 4.99 per cent and 5.49 per cent respectively with no fee under the scheme.

The lenders are expecting to sign up 25,500 first time and next time buyers to the scheme over the next three years.

Martin Lewis, founder of the consumer help website,, says “there is a real worry people will rush to take up the deals just because they can” he also added that “While these deals are cheaper than existing 95 per cent mortgages, they are still very costly compared to normal mortgage rates.”

Other financial experts have warned that borrowers taking up the Government’s offer will still find the products more expensive than if they had saved up for longer to raise a bigger deposit.

So it would seem that typically, buyers who take up the scheme will be paying an interest rate of 4 to 5 per cent, plus various arrangement fees that are yet to be decided.

Mortgage experts have warned that some home buyers with small deposits are likely to be hit with higher charges as the government steps up its help to buy scheme.

It would seem that this scheme could come with a sting in the tail, including back-door charges and possibly even a dangerous house price bubble.

The problem with this scheme could also come from the fact that the scheme basically works as an insurance policy, where the government guarantees up to 15 per cent of the purchase price and charges a fee to the bank or building society.

It is thought this fee will be around £1,000 and it is likely it will be passed on to the home buyer, either through a specific charge or a higher interest rate on the loan.

But the fee will vary from lender to lender.


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