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‘Lies, damn lies and statistics’: Why David Cameron’s Help to Buy claims don’t stack up

Yesterday Prime Minister David Cameron claimed the second part of the Help to Buy scheme has cut mortgage bills by £2,500 a year.

But this calculation is a crude manipulation of figures based on a comparison with the mortgage market from six years ago, rather than other 95 per cent LTV deals available today.

Help to Buy allows borrowers to access 95 per cent loan to value deals through a 15 per cent Government guarantee on properties worth up to £600,000.

Writing yesterday in The Sun, Cameron said: “This is not just cutting deposits, it’s cutting mortgage bills. A mortgage for a Help to Buy property at average price is £2,500 a year cheaper.”

After some digging we established that instead of comparing the average costs with other 95 per cent deals available now without the state support, the figures are a comparison with two-year fixed rates at 95 per cent LTV that were available in 2007.

A Number 10 spokesman does not have an exact date for the comparison but says rates were consistent throughout 2007. He says Cameron is comparing mortgages from the last decade because it was the last time 95 per cent LTV deals were widely available.

In 2007, Prime Minister Tony Blair was in power, Fred Goodwin was in charge of the Royal Bank of Scotland, Northern Rock was a booming mortgage lender and interest rates were far higher. 

To compare today’s mortgage market with 2007 and use it to suggest Help to Buy 2 is cutting people’s mortgage bills makes little sense. 

Fixed rate mortgages have plummeted because of a mixture of record low interest rates, massive quantitative easing and the Government’s Funding for Lending scheme.

For current 95 per cent deals in general, it is plausible to claim Help to Buy has boosted competition and brought down average rates since earlier this year. But this is not the claim Cameron makes.

John Charcol senior technical manager Ray Boulger says it a “ridiculous comparison”. 

He adds: “There are lies, damn lies and statistics. If you want to go down the opposite route then in 2007 the differential on a 95 per cent LTV mortgage and Bank base rate was around 1 per cent whereas now, even with Help to Buy, it is around 4.5 per cent. It’s a rather stupid argument.”

Many argue Help to Buy mortgage rates should be far lower than they are. If you look at lenders not using Help to Buy, the 95 per cent rates offered are often cheaper than those available through the scheme.

Moneyfacts data, compiled for Money Marketing, shows the cheapest Help to Buy 2 deal available is a two-year fix with RBS at 4.99 per cent.

The cheapest non-Help to Buy 95 per cent LTV deal is a Furness Building Society five-year fix at 4.75 per cent with a number of deals from building societies also cheaper (see table).

Your Mortgage Decisions director Dominik Lipnicki says Help to Buy deals should be compared to 80 per cent LTVs, the level after the Government guarantee ends. 

Lipnicki says: “Not only is Cameron comparing the wrong dates but these aren’t 95 per cent loan to value mortgages. It is the Government putting in their bit and borrowers putting in the rest. The risk to the lender is not 95 per cent so they are not comparing apples with apples. Lenders should have lower rates.”

Moneyfacts financial expert Rachel Spingall says: “The guarantee offered by the Government essentially makes Help-to-buy deals 80 per cent LTV. On this basis comparing 20 per cent deposit deals means the rates are less attractive.”

However, Help to Buy guarantees only last for seven years, lenders pay a commercial fee for the privilege ans with borrowers stumping up just 5 per cent they are riskier.

Boulger estimates a fairer comparison of Help to Buy rates woudl be to look at non-Help to Buy deals between 85 per cent and 90 per cent LTV.

Help to Buy Phase 2 Rates        
Lender Rate Details Maximum
LTV
Fees Other Features
NatWest 4.99% Fixed to 31/03/2016 95% None No arrangement fees. No Higher Lending Charge (HLC).
Help to Buy 
Royal Bank of Scotland 4.99% Fixed to 31/03/2016 95% None No arrangement fees. No Higher Lending Charge (HLC).
Help to Buy 
Halifax 5.19% Fixed to 29/02/2016 95% £995, No Higher Lending Charge (HLC).
Help to Buy 
Halifax 5.19% Fixed to 31/12/2015 95% £999, No Higher Lending Charge (HLC).
Help to Buy 
NatWest 5.49% Fixed to 31/03/2019 95% None No arrangement fees. No Higher Lending Charge (HLC).
Help to Buy 
Royal Bank of Scotland 5.49% Fixed to 31/03/2019 95% None No arrangement fees. No Higher Lending Charge (HLC).
Help to Buy 
         
Top Five Fixed Rates at 95% – (non-Help to Buy)      
Lender Rate Details Maximum
LTV
Fees Other Features
Furness BS 4.75% Fixed for 5 years 95% None No arrangement fees. No Higher Lending Charge (HLC).
Branch interveiw required.
Hanley Economic BS 4.89% Fixed to 31/12/2015 95% £250, Free valuation fees (Max £240). £250 rebate. No Higher Lending Charge (HLC).
Loughborough BS 4.99% Fixed for 5 years 95% £99, To 90% No Higher Lending Charge (HLC)
 
Clydesdale Bank / Yorkshire Bank 4.99% Fixed to 31/01/2017 95% None Free valuation fees. No arrangement fees. £250 rebate. No Higher Lending Charge (HLC).
Leeds BS 5.19% Fixed to 31/12/2018 95% £800, No Higher Lending Charge (HLC).
         
Source:     Compiled: 12.11.13
Moneyfacts.co.uk        

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Derek Bradley ceo Panacea Adviser 12th November 2013 at 4:37 pm

    Ray Boulger is correct, it a “ridiculous comparison”.

    In 1982, John Nott was asked by Robin Day, the ‘Grand (BBC political) Inquisitor’ “But why should the public, on this issue, as regards the future of the Royal Navy, believe you, a transient, here-today and, if I may say so, gone-tomorrow politician, rather than a senior officer of many years”.

    At that point John Nott simply stood up, removed his microphone and walked out.

    And hereby is the root of the problem. Prime Ministers and Cabinet Ministers come and go, Gordon Brown, Tony Blair, John Major for instance. They wreak havoc in so many ways upon the electorate they are meant to serve.

    They often bleed or destroy the underlying wealth of the country hinder businesses with ill thought out regulation, create and agree laws that are unenforceable, spend money they do not have, give rights to people without responsibility being attached to it and spin facts to send UK troops to their death or serious injury invading or occupying foreign countries.

    Jerome John “Jerry” Garcia was an American musician best known for his lead guitar work, singing and songwriting with the infamous band the Grateful Dead. He was on record as saying “Death comes at you no matter what you do in this life, and to equate drugs with death is a facile comparison”.

    Garcia died in 1995. Cameron’s comment is facile.

  2. Downing Street won’t care – All they wanted was a headline, and the £2500 has given them it.

  3. You cannot believe a word this man says. He said he wants fairness for all pensioners and when asked during the scrutiny period of the pensions bill he said to leave things as they are which meant including clause 20 which will freeze any pensioners state pension should they retire to a Commonwealth country thereby condoning the discriminative policy.
    He lied about the EU referendum. The Pensions minister Steve Webb was adamant that the freezing policy was discriminative and irrational when in opposition and has since said it is an anomaly but now does nothing but defend it. Politicians like this have no place in a government and should get the boot at the next election. They are playing into the hands of Ukip who will wipe the floor clean and good riddance to these dishonest lying millionaires who have no conscience or commonsense and do not know the meaning of integrity.

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