As the Government launches the second phase of Help to Buy, its low-deposit mortgage guarantee scheme, Vicky Shaw looks at the effects it will have on first-time buyers, and the property market as a whole

LAST week, three months earlier than expected, the Government threw another lifeline to mortgage borrowers with a deposit of only five per cent.

The second phase of its highly-anticipated and controversial Help to Buy mortgage guarantee scheme now sees major mortgage lenders offering state-backed home loans to people (with the required deposit) who want to buy either a new-build or an existing home. The first phase, launched back in April, only applied to the newbuilds.

It is hoped the scheme will free up some stuck chains and get the whole housing market moving again, not just certain pockets of the UK, like London, which are already seeing strong demand.

State-backed lenders Royal Bank of Scotland (RBS) and NatWest were the first to start offering loans under the scheme, including a fee-free two-year fixed-rate deal with a rate of 4.99 per cent. Halifax and Bank of Scotland, which are also backed by the Government, are now also offering a loan under the new initiative with a higher two-year fixed rate of 5.19 per cent and a £995 product fee.

Lenders representing most of the mortgage market have now signed up to the scheme.

Other major players in the market, including Santander, HSBC and Barclays, have confirmed they will take part, but they are yet to unveil the full details of what they will be offering.

So far, the lenders who are involved in the scheme have reported a strong appetite from consumers for their deals – RBS and NatWest have said would-be applicants have been viewing their new online Help to Buy pages at a rate of 40 times a minute and Lloyd Cochrane, head of mortgages at RBS/NatWest, described the response as fantastic.

The new mortgage guarantee scheme was originally expected to be fired into action in January, although some analysts had urged the Government to ditch it altogether amid fears that it could lead to another housing bubble by encouraging borrowers to overstretch themselves.

The initiative will be reviewed every September to check its impact and examine whether some of its elements need adjusting.

While the new initiative is expected to spark more competition and widen borrower choice, experts have pointed out that so far, the rates on offer under Help to Buy are not hugely different from what was already available.

Before the new phase of Help to Buy was launched, only a handful of providers were offering deals to people with deposits as low as five per cent, with only 44 products available compared with the 700 products for people with a 20 per cent deposit.

Charlotte Nelson, spokeswoman for financial information website Moneyfacts, said: “Despite the 95 per cent loanto- value market being restricted, the market is slowly starting to heat, so there are many more good deals on the market.

“Borrowers should try to look at the whole aspect of the mortgage including any fees and incentives, which not only help struggling first-time buyers with initial cost but reduce the overall cost longer term.”

So how does the new scheme work? The first phase of Help to Buy was only aimed at giving people buying a newbuild home a helping hand.

This latest second phase, which applies to all properties, will stimulate the housing market across the UK.

The new initiative, which runs until January 2017, sees the state offer guarantees totalling about £12bn to encourage more low-deposit mortgage lending.

These guarantees are for the lender, not the borrower.

The mortgage lender can buy a guarantee from the Government that will compensate them for some of their losses if a borrower defaults.