According to the latest research from the Mortgage Advice Bureau, a well-known broker, 47 per cent of potential first-time-buyers said that the Government should have done more to incentivise banks and building societies to launch savings accounts offering higher rates of interest that could have allowed them to save up a suitable deposit in a shorter amount of time. This was in comparison to 45 per cent who agreed that offering a 95 per cent LTV mortgage was a more suitable approach to assist people in getting onto the housing ladder.
The Bank of England published figures this week showed that in the UK, around £23bn was taken out of long-term savings accounts in the past 12 months. This works out to an average of around £900 per household – which is also the fastest rate of savings withdrawals for almost four decades.
Savers are now becoming disillusioned with the record low interest rates offered on their cash deposits – little more than 1% in many cases, with many beginning to give up on the prospect of a decent financial return and instead spend the cash or move it into an easy-access current account.
The second phase of George Osbourne’s Help to Buy scheme was launched in October. Designed to help first-time buyers and existing property owners looking to further their journey up the property ladder, the scheme allows buyers to acquire a property up to the value of £600,000 with only a 5% deposit. The Government will then guarantee up to 15 per cent of the loan at a cost to the lender, which in theory then allows the borrower to access cheaper mortgage rates and deals.
Planned to remain open until January 2017 – the scheme has set aside £12bn of guarantees to be used for up to £130bn of mortgage lending.
Head of lending at the Mortgage Advice Bureau, Brian Murphy, said: “Offering high interest rates on savings to remove the need for a 95 per cent mortgage is a novel idea, but it could still require an exceptionally high rate or a lengthy period of time for enough interest to accrue so people can save the equivalent of a 20 per cent deposit on a home”
With more lenders announcing they are going to join the scheme before Christmas – Virgin Money and Aldermore – it will be interesting to see exactly how the scheme picks up further speed next year, and how this has an effect on an already volatile housing market.
