The Government’s drive to help buyers with smaller deposits onto the housing market has been hailed as a success. Vicky Shaw looks at the impact of the Help to Buy mortgage guarantee scheme since its launch in October

AFTER the blaze of initial publicity, we are now seeing the first real glimpses of how the UK-wide Help to Buy scheme is bedding in.

The scheme allows creditworthy borrowers to buy a new-build or an older home with a five per cent deposit and a state-backed mortgage, which removes some of the risk for the lender if the borrower defaults.

The Government has just announced that this incentive encouraged more than 2,000 people to put in offers on homes in the first month of the initiative’s launch, totalling £365m of new mortgage lending.

The reason for the scheme is mainly that deposit mortgages have been harder to come by since the financial downturn, but the new figures show about 75 families a day are taking up the scheme.

State-backed lenders Royal Bank of Scotland (RBS), NatWest, Halifax and Bank of Scotland started offering products under the new phase of Help to Buy last month and HSBC has also just unveiled two new deals under the scheme.

Aspiring homebuyers may want to wait and see what else is in the pipeline though, as lenders representing about two-thirds of the mortgage market have committed to eventually getting on board the scheme.

Competition is also really hotting up among mortgage lenders outside the Help to Buy scheme, as they realise they need to up their game to attract new business.

If you are looking for a five per cent deal, it is worth considering all your options as there are signs that Help to Buy is creating a knock-on effect by encouraging lenders which are not part of the initiative to bring out new deals.

One major development has been that the Yorkshire Building Society has just unleashed a wave of five per cent deals onto the market which are not part of Help to Buy. These 36 new products are available through Yorkshire’s brands Barnsley, Chelsea and Norwich and Peterborough, and the group’s intermediary-only lending arm, Accord Mortgages.

So what do the experts think of the scheme? Here is what consumer campaigners and housing market experts have to say about the Help to Buy mortgage guarantee scheme:

Martin Lewis, founder of MoneySavingExpert.com

Mr Lewis says people must consider whether they can genuinely afford the repayments – and if this will still be the case when interest rates eventually go back up.

Lewis points out that the Government guarantee under the scheme is there to protect the lender, not the borrower.

Under the scheme, while the borrower puts up five per cent of the value of the home, the Government covers the lender for a further 15 per cent, so the lender is effectively only taking on a risk as if the borrower had a 20 per cent deposit.

He said: “If you have only got a five per cent deposit and have worked out that getting a mortgage is right for you, you just need to look for a 95 per cent loan-to-value (LTV) mortgage in the same way you always would.

“What counts are the fees, rate and terms. So if the best five per cent deposit mortgage is Help to Buy, and it’s right for you, great, go for it. If not, go for the other.”

Charlotte Nelson, spokeswoman for financial information website Moneyfacts

Ms Nelson believes that some aspiring buyers may still end up disappointed as they will have to pass strict credit criteria.

She said: “Despite the increased choice to borrowers, strict credit criteria is still entrenched in banks’ policy and this can cause difficulty for many.”

She said that signs that mortgage lenders outside the Help to Buy scheme were also revamping their five per cent deposit deals “really lays down the gauntlet to the entire mortgage market”.

David Hollingworth, associate director, communications, London and Country Mortgages

Mr Hollingworth believes the return of such big lenders to the five per cent deposit market is “in itself a big thing”.

But with house prices rising strongly in some areas, some would-be buyers face a dilemma whether to put a five per cent deposit down now to beat any future increases or to hold on and try and save for a ten per cent deposit, which would give them access to lower mortgage rates.

He said: “Much will depend on the circumstances.”