New 95% mortgages are cheaper than Help to Buy

Several lenders have unveiled new deals aimed at first-time buyers and they are cheaper than those currently offered through the Government's Help to Buy scheme.

Several lenders have unveiled new mortgage deals for people with a 5% deposit – directly competing with the second part of the Government’s Help to Buy scheme. But are they any cheaper?

How Help to Buy works

There are two parts to Help to Buy. The first, which was launched in England in April and in Scotland in August, offers a mortgage of up to 75% of the value of the home, plus a loan of up to 20%. This can be used to buy any new-build property up to a value of £600,000 (£400,000 in Scotland).

In England, you’ll pay interest on the equity loan after five years, but in Scotland you won’t have to at any time. You need to go through a mortgage adviser to get hold of one of these mortgages.

The second part launched in October and is available across the UK on any property, not just a new-build, up to a value of £600,000. It offers 95% mortgages, which are guaranteed by the Government.

So far, NatWest/Royal Bank of Scotland and Halifax/Bank of Scotland are the only banks to have released their rates. Aldermore, Virgin Money, HSBC and Santander have all said they will launch mortgages in the coming weeks.

But these second phase mortgages have subsequently been beaten by new products launched by lenders who aren’t participating in Help to Buy. Let’s have a look at what’s on offer.

New 95% mortgages

The latest 95% mortgages come from the Yorkshire Building Society group, which comprises Yorkshire, Barnsley, Chelsea and Norwich & Peterborough Building Societies and the mortgage broker-only Accord Mortgages.

They are only currently available for home buyers, not people wanting to remortgage, and come in both two-year and five-year fixed rate and offset varieties.

Here are the two-year rates:

And here are the five-year rates:

The Chelsea mortgages are generally less competitive, with many coming with a huge £1,545 fee.

If you're looking specifically at new-build homes, you'd be better off investigating the Help to Buy equity loan options, as these average around the 3% mark for a two-year and 3.5% for a five-year fix.

Help to Buy versus 95% alternatives

So how do these new mortgages compete with the Help to Buy mortgages and other 95% mortgages?

Here are a few of the top 95% fixed rate mortgages available compared with the top mortgages available under Help To Buy:

You can see there is a huge difference and the Help to Buy mortgages don't look very competitive. The Halifax/Bank of Scotland offerings are even pricier.

In fact, if you took out a £150,000 mortgage via the Vernon Building Society 4.99% five-year fix instead of the NatWest/RBS 5.49% Help to Buy equivalent, you'd save £2,653.46 over the initial five-year period.

Cheaper Help to Buy deals are on the way...

HSBC has now announced that, from Monday 25th November, it is launching two Help to Buy mortgage guarantee mortgages:

• a two-year fixed rate with an initial interest rate of 4.79% and a £99 booking fee;
• and a five-year fixed rate with an initial rate of 4.99% and a £99 booking fee.

These will only be available in HSBC branches, only available for home purchases and you will need a minimum deposit of £10,000. These are the most competitive mortgages so far of the second phase of the Help to Buy scheme.

So make sure you shop around. You may even want to wait until the new year now, as not only will there be the launch of the remaining Help to Buy mortgages, but more competitive 95% mortgages from other lenders as well.

Get help from an expert mortgage adviser

This article aims to give information, not advice. Always do your own research and/or seek out advice from a regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

More on property and mortgages:

Buy now or hope to buy later: the big property gamble

The questions you must ask before you buy a house

HSBC extends first-time buyer mortgage price promise

Overpay your mortgage and save thousands