Prospective buyers with small deposits are benefiting from a price war among mortgage lenders, say brokers, after the last of the major high street banks launched its 95% deal under Help to Buy.
Barclays will offer a fee-free three-year fixed rate at 5.35% and a five-year fix at 5.49% from tomorrow through the second stage of the government’s controversial scheme, aimed at giving buyers a leg-up on to the property ladder.
The scheme offers lenders taxpayer-backed guarantees on mortgages at high loan to values.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “The second stage has had a slow start, but as more lenders come on board, competition is driving a price war and pushing rates down. Lenders are offering more choice and improving the rates on offer, although they remain slightly higher than those for buyers with a bigger deposit.”
At the start of October, when the new phase of Help to Buy launched, there were just 42 products for people with a 5% deposit but this has soared to 145 including the new Barclays deals, says data analyst moneyfacts.co.uk.
Considering the Help to Buy deals on the table, Rachel Springall, from moneyfacts, said that Barclays’ three-year fixed deal at 5.35% beats Virgin Money’s at 5.39%, the only other lender to offer a Help to Buy deal over this time period.
However, it is worth considering the additional incentives, she adds; the Virgin Money deal, which like Barclays’ is fee free, offers cashback. She says: “At 5.49%, Barclays’ fee-free five-year fixed deal lacks additional incentives but appears to be priced to match NatWest, Santander and Virgin Money. However, the Santander deal boasts a £250 cash rebate and free valuations and Virgin Money offers a £300 rebate.”
HSBC offers attractive rates, with a two-year fix at 4.79% and a five-year fix at 4.99%, both with a £99 fee. However, these deals are only available to borrowers able to put down a £10,000 deposit.
David Hollingworth, from broker London Country, urges borrowers to look outside of Help to Buy. “They should consider the wider market, as it’s irrelevant whether the product is guarantee-backed or not it comes down to whether they fit the criteria and if it’s suitable for their circumstances.”
Competition is heating up in the low-deposit mortgage market among lenders not taking part in the scheme. Yorkshire building society has dozens of 95% mortgage deals and has been cutting the rates on these since the launch of the second stage of Help to Buy. It offers a three-year fix at 4.99% with no fee, down from 5.49% before October.
Also away from Help to Buy, Norwich Peterborough building society offers a two-year fix at 4.79% with a £845 fee and 4.99% with no fee, a free valuation and £250 cashback.
Hollingworth says: “Overall, Help to Buy has really helped open up a market that had been all but closed in recent years. Adding more competition should help improve the rates and hopefully allow others to develop products. Those that had supported the market throughout should also be able to carry on offering deals and perhaps improve rates further.”