Help to Buy enters second phase

Updated: 
For saleThe Government's new Help to Buy scheme will enable people to buy a home with a deposit of less than £10,000 in more than half of regions across country, a property website has found.

Aspiring home buyers will from this week be able to start applying for the second phase of the flagship initiative, which will offer state-backed mortgages to UK borrowers with deposits as low as 5%.


The scheme, which has sparked fears of a new housing bubble, will give people a helping hand to buy a new or existing home worth up to £600,000.

The launch means the average buyer will be able to get on the housing ladder with a deposit of less than £10,000 in six out of 10 regions across England and Wales, analysis by Zoopla.co.uk found. These are the North East, the North West, Yorkshire and the Humber, the West Midlands, the East Midlands and Wales.

With the average asking price standing at £222,168 across England and Wales in October, Zoopla found that the typical size of a 5% deposit needed across the country would be £11,108.

Currently, there are around 665,000 properties on the market with asking prices under £600,000 which could be eligible for Help to Buy and the scheme would have the potential to knock £22 billion off home buyers' deposit requirements, Zoopla calculated.

London home buyers, at around £16,103, will still need to find the most money under Help to Buy - while those living in Yorkshire and the Humber will need to find the least cash, at £8,129 typically, according to the website.

Recent studies suggest that Help to Buy will considerably ramp up the appetite for home buying in the coming months. One-third of people who are considering buying a home in the next year plan to turn to the scheme, according to a recent survey by Santander.

But experts have warned that many people will be left disappointed as lenders will still have tough rules in place to make sure that they can afford to pay their loan back.

State-backed lenders Royal Bank of Scotland (RBS) and Lloyds Banking Group, which together account for about one third of the mortgage market, have confirmed they will be taking part in the initiative, after the launch was brought forward from next January.

But several other major mortgage providers are still want to know further details about the costs and benefits of the scheme before deciding whether to add their names to the list.

The initiative, which is set to run until January 2017, will see the state offer guarantees totalling around £12 billion to unlock £130 billion of high loan-to-value mortgage lending.

Phase two of Help to Buy will initially be available under the NatWest, RBS and Halifax brands. RBS/NatWest plans to help 25,500 buyers through the scheme over the next three years and it will extend its opening hours to meet customer demand.

Customers who get access to these mortgages will be able to draw down funds as soon as they are approved and will not have to wait until the original launch date of January.

Another lender, Aldermore, which accounted for 0.3% of the mortgage market in 2012, has said it plans to come on board in January.

Several experts have argued that the Government should ditch the second phase of Help to Buy, which they fear will artificially inflate house prices too highly by ramping up demand at a faster rate than the supply of homes coming on the market.

Mortgage availability has already become much more widespread following the launch of the Government's Funding for Lending scheme in August last year, which gives lenders access to cheap finance in order to help borrowers. T he first phase of Help to Buy is an equity loan scheme which gives people buying a new-build property a helping hand.

Lenders have recently seen first-time buyer numbers reach their highest levels in more than five years. House prices in London are around 10% higher than they were a year ago, although the market remains patchy and some parts of the country are only just starting to see prices turn around following the financial downturn.

Peter Rollings, CEO of London-based estate agent Marsh & Parsons, said the new phase of Help to Buy will be " like a shot of adrenalin".

He said of the London market: "The capital needs this stimulus to free up mid-ladder buyers who want to become first time sellers.

"This will create a much healthier balance between supply and demand."