Last Tuesday, October 8, 2016, England enacted the second phase of its Help to Buy plan, which encourages low-deposit borrowing for purchases of newly built and already existing homes. The first phase of the plan was enacted this April, and the plan is set to run for the next three years.
Under the first phase, the government will provide a 20% equity loan toward the purchase of a new home priced at £600,000 or less when the purchaser deposits 5% of the purchase price up front. These loans are interest free for the first five years, accrue at an interest rate of 1.75% for the sixth year, and accrue at a floating rate of 1% plus the Retail Price Index inflation rate for every subsequent year.
Under the second phase, registered lenders, who have paid the necessary fees to the government, may offer a mortgage covering up to 95% of the purchase price of a new or existing home valued at £600,000. The purchaser, however, is required to deposit 5% of the value up front. In return, lenders will receive a seven-year guarantee from the government covering 15% of the loan value.
The four participating lenders have already revealed their rates, but some lenders have been more reluctant to join the program. RBS and NatWest are offering a two-year, no fee fixed-rate mortgage (FRM) starting at 4.99% for those depositing 5% of the home value. Halifax is offering a starting rate of 5.19% with a £995 fee. While somewhat competitive for the low-deposit market, these rates are not competitive with higher-deposit rates.