RBS, Bank of Scotland offer Help to Buy mortgages

The UK Government is backing 95-per-cent mortgages for first-time buyers with limited deposits. Picture: TSPL

Several major high street banks plunged back into the 95 per cent mortgage market, lured by £12 billion of guarantees from the government, as it launched the latest phase of the initiative.

RBS, Nat West and Halifax this week start taking applications for the initiative, designed to help people who have not managed to save enough for the hefty deposits to buy a house.

Later, HSBC and Virgin Money will join the scheme, launched by the UK government to help potential buyers obtain mortgages worth up to 95 per cent of property values.

Taxpayer-backed RBS and its subsidiary Nat West immediately set out mortgage deals under the scheme and announced that 740 branches would extend opening hours for two weeks to cope with expected demand.

Halifax and Bank of Scotland, owned by the state-backed Lloyds Banking Group, will start offering loans under the scheme on Friday.

Treasury officials believe the initiative will cost taxpayers nothing as lenders will pay a fee for the guarantee, which will underwrite up to 15 per cent of a property’s value.

Instead, it is buyers who will face a premium for being able to own their own homes with a deposit of only 5 per cent, as borrowing rates look set to be much more costly than for smaller loan-to-value (LTV) deals.

RBS is offering a two-year fixed rate deal at 4.99 per cent and a five-year fixed rate deal at 5.49 per cent, based on 95 per cent LTV.

Last night, RBS head of mortgages Lloyd Cochrane said four times as many potential house-buyers registered with the bank than is normal for a Tuesday.

He added: “A lot of customers are struggling to save the large deposits that are required at the moment, but are saying they have decent incomes and in a lot of cases are paying rent that might be more than the mortgage they could get.

“In Scotland, based on averages, it is going to take one of our customers about four years to save 10 per cent and half that for a 5 per cent deposit. So this allows us to help customers who have good levels of affordability, but are struggling to raise a large deposit.”

Lenders have been given freedom to set rates but Treasury officials expect that as more banks take part in Help to Buy, they may come down.

The new scheme was launched after officials decided to address a perceived “market failure” when high loan-to-value mortgages dried up following the credit crunch.

It has been designed to try to ensure that only credit-worthy borrowers can obtain the loans.

Only residential properties valued at £600,000 or less can be bought under the scheme and interest-only loans are banned.

They cannot be for second homes, buy-to-lets, part of a shared equity scheme, or subject to another guarantee.