Mortgage Advice Bureau says its latest data show that homebuyers are increasingly taking full advantage of the Help to Buy mortgage guarantee scheme to secure loans of up to 95% to buy a home.
Having stood at 92.5% in April, the average loan to value (LTV) of a Help to Buy 2 mortgage rose for a second successive month to 94.4% in June: just short of the maximum 95% available through the scheme.
The firm said rising LTVs indicate that buyers are putting up smaller deposits, averaging just £8,527 in June compared with £11,438 in April: a saving of £2,911 or 25%.
However, the average price of properties bought via Help to Buy 2 has remained stable in this period with June’s figure of £151,285 just 0.2% higher than April’s £151,021.
Taking all mortgaged house purchases into account, the average deposit grew for a fourth successive month in June to £71,474. In the last two months alone, while the average Help to Buy 2 deposit has fallen by £2,911, the average deposit across the whole of the market has risen by £6,324.
June’s average LTV of 69.8% across all purchase mortgages is the lowest since October 2013 and the first time this figure has dropped below 70% in 2014: another sign that the average homebuyer is contributing more of a deposit to secure a mortgage, the firm said.
Lower Help to Buy 2 deposits do mean the average loan via the scheme has risen by 2% (£3,175) from £139,583 in April to £142,758 in June. Assuming an interest rate of 5% over a 25 year term, it means the average Help to Buy 2 buyer in June will repay an extra £18.77 each month towards their mortgage and an extra £5,631 over the lifetime of the loan.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “The volume of buyers using Help to Buy 2 may be small, but the scheme is continuing to play an important role in boosting access to the housing market in a carefully screened manner. Buying with a 5% deposit remains the only realistic option for many would-be first time buyers – especially those who cannot rely on parental handouts.
“With the right checks and balances in place, this kind of activity is an important part of a healthy mortgage market that can satisfy consumer needs without compromising on standards. Affordability checks and income stress tests will protect against excess loan commitments and make sure borrowers are financially fixed to manage their repayments.
“The fact that the value of homes bought through Help to Buy 2 is safely anchored around the £151,000 mark means that putting up less of a deposit makes relatively little difference to the total amount borrowed. Although it means repaying a larger sum overall, many will consider this a price worth paying for the benefit of getting their foot on the ladder.”