What the end of the Help to Buy Guarantee means for homebuyers
The Help to Buy Mortgage Guarantee was launched in October 2013. It followed in the footsteps of the Help to Buy equity loan scheme and is often referred to as Help to Buy 2 as a result.
What was the problem?
The scheme was designed to improve the options for those buyers with only a small deposit. By providing a Government guarantee to lenders, the aim was to boost the number of banks offering mortgages to those with smaller deposits.
At the time of launch there were only a handful of mortgage options available to borrowers with less than 10% of the purchase price to put down and the rates on offer were higher than for those that could pull together a bigger deposit.
Did it work?
The launch of the Help to Buy Guarantee meant that lenders could limit any potential loss, which succeeded in bringing major lenders back to that end of the market. High street names including Halifax and Natwest launched products for those with only 5% to put down.
Since then many other lenders have used the Guarantee to develop a range of options up to as much as 95% of the purchase price. The return of big names meant that other lenders also felt confident enough to launch rates. Some even launched competitive deals without relying on the Help to Buy Guarantee at all.
The growth in the number of deals at 95% that the Guarantee sparked means that buyers now have a great choice of mortgage products. The increased competition has also meant that rates have improved over time although they are still higher than for those that have a bigger deposit.
What's happening now?
The Guarantee scheme was always scheduled to come to a close at the end of 2016. The Chancellor has recently confirmed that Help to Buy 2 will be withdrawn as originally intended.
How could that affect mortgage rates?
That has naturally raised concerns that the number of 95% mortgages on offer to first time buyers, homemovers and remortgage borrowers could reduce. If the amount of mortgage choice did contract then it would undoubtedly cause interest rates to rise.
However, many lenders now offer 95% mortgages without using the Government guarantee at all. There's been nothing to suggest that lenders are pulling away from this type of lending and it would be a surprise if there was any significant impact from the withdrawal of the scheme.
In fact the Bank of England assured the Chancellor that there was no evidence that the supply of credit should be affected by the end of the scheme.
What about the other Help to Buy Schemes?
The withdrawal only applies to the Guarantee scheme whilst the highly successful equity loan scheme aimed at New Build properties continues.
The Help to Buy ISA continues as well, helping to boost first time buyer savings with a Government bonus applied to regular savings.
So Help to Buy may be slimmed down after the end of the year but still has plenty of options to offer to UK homebuyers.