Rates for Help to Buy unveiled

Mortgage rates for the controversial Help to Buy initiative have been unveiled. RBS announced that it would be offering two and five-year fixed rate contracts at 4.99 per cent and 5.49 per cent respectively. Halifax is offering a two-year fixed rate of 5.19 per cent.

The governments scheme will see taxpayers on the hook for 15 per cent of a home's value in order to assist buyers obtain 95 per cent mortgages.

There will be total of £12bn in mortgage guarantees over the next three years. The large scale government intervention into the housing market has become subject to fierce criticism.

Robert Wood, Berenberg, Chief UK economist said on Tuesday:

The housing market is a growing risk for the UK, not because of where prices are today – the market is recovering from a depressed level – but because of where prices could be in a couple of years time. Prices are rising across the country, with the RICS survey signalling strong house price inflation in a number of regions outside London. Adding a huge government mortgage guarantee scheme to an already rapidly recovery housing market is not a risk worth taking in our view.

The UK housing market is already seeing signs of rapid growth with RICS rising 14 points in to 54 in September, the highest level seen since 2002. A slew of positive economic data, including the quarterly British Chambers of Commerce and the CBI/PwC financial services survey, provides further substance to question the necessity of the scheme.

The government has however received a glowing endorsement from the Council of Mortgage Lenders.

In a press release this morning, CML director general Paul Smee said:

Borrowers who simply haven't yet managed to save a large deposit but are able to manage the repayments on a loan are already seeing an improvement in the mortgage choices available to them, and this will increase with the advent of the Help to Buy mortgage guarantee scheme.

The key benefit of the scheme is in providing additional security to lenders, and so making it more likely that they will be willing to make loans to creditworthy borrowers with modest deposits.

The Treasury select committee will give its view on the scheme later today.