Help to Buy mortgage rates could be high as 6 per cent, raising concerns about how affordable mortgages will be under the flagship government scheme.
The Government is to reveal more details this week about how the Help to Buy scheme will operate, including the fees lenders will have to pay to access Government guarantees and whether mortgages written under the scheme will qualify for capital relief.
The Times reports Help to Buy rates could hit 6 per cent, despite the Government guaranteeing up to 15 per cent of the loan-to-value on new and existing homes worth up to £600,000.
One banking source told the newspaper: “You would realistically have to expect that any rate [under Help to Buy] is going to be in line with the current 95 per cent products on the market and more expensive than the 90 per cent products. It is not going to be cheaper.”
The Daily Telegraph says Help to Buy mortgages at 95 per cent LTV are set to be priced at over 5 per cent for a two-year fix, with 90 per cent deals priced at over 4.5 per cent. It says these rates would be more expensive than other mortgages available outside of Help to Buy.
The newspaper reports the Treasury may charge 0.9 per cent of the loan on a 95 per cent mortgage, equivalent to £1,800 on a £200,000 loan.
John Charcol senior technical manager Ray Boulger told the paper: “I don’t think rates will begin to fall until we get a decent amount of competition.
“If you were a lender coming into a market with no competition would you price very keenly, or at a level that gave you a decent margin?”
Anderson Harris director Jonathan Harris said: “You would expect a Government guarantee in the background would significantly reduce rates, giving first-time buyers the affordability they crave.
“If it doesn’t this phase of Help to Buy is likely to be a damp squib.”