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THE starting pistol has been fired on a race for cheap mortgages for first-time buyers and movers.

Yesterday, the Government launched the latest phase of its Help to Buy scheme, which guarantees loans for buyers with small deposits.

Ministers hope it will get the whole of the UK housing market moving again — not just London and hotspots across the South-East.

For those with small deposits equivalent to 5 pc of their property’s asking price, the early signs are encouraging.

State-backed RBS and NatWest are offering a 4.99 pc two-year fixed deal or 5.49 pc over five years, both without a fee.

In the case of the two-year fix, this is nearly a whole percentage point cheaper than the nearest rival deal available on the open market at Newcastle Building Society.

For hard-pressed buyers, this adds up to a monthly saving of £86 on a typical £150,000 home loan and £2,259 over two years.

Rivals Halifax and Bank of Scotland — also part-owned by the Government — have rolled out a deal at a higher 5.19 pc (plus a £995 fee) for those who have saved the same sized deposit.

BUY A £600,000 HOME WITH A 5 PC DEPOSIT

THE new deals unveiled yesterday herald the l aunch of the second phase of the Government’s f l agship Help to Buy scheme.

The first part of this, unveiled in April, allowed buyers to purchase a new-build property. If they put down a 5 pc deposit, they could then qualify for a further 20 pc in the form of a loan from the Government that is interest-free for five years. With 25 pc behind them, they could qualify for a number of cheaper mortgage deals.

Some 15,000 such mortgages have already been handed out in the six months since the scheme’s launch.

The second part, which was originally scheduled to launch in the New Year but was moved forward to yesterday, allows buyers to purchase a home — either old or new — for up to £600,000 with a deposit worth just 5 pc of the property price.

The Government guarantees up to 15 pc of the property value for the bank in return for a small fee from the lender. The idea is that this guarantee cuts the risk for banks and building societies and allows them to lower their rates.

The first banks to offer loans were RBS/NatWest and Halifax.

RBS/NatWest says it anticipates a rush in demand from buyers and expects to sign up some 25,500 first and second-time buyers by 2016.

To cater for this, more than 700 branches will extend opening hours for two weeks.

HSBC has announced it will offer Help to Buy l oans, with deals expected in November.

Virgin Money and Aldermore Bank will have rates in the New Year.

Other lenders are likely to set out their stall during the coming weeks.

It is hoped the scheme will add oil to the gears of the UK’s housing market. A recent report from the Office for National Statistics (ONS) showed that prices were still falling in some regions — though they were climbing quickly in London and parts of the South.

Justin Modray, of financial advice website CandidMoney, says: ‘If Help to Buy takes off without creating a property bubble, which is debatable, then it could have a huge impact across the country.

‘With growth in prices in towns and cities, it will help encourage job mobility and boost employment (as more people are prepared to move to find work), help fuel investment and bring everything that comes with such an injection of growth, such as improved schools and transport.’

NO INTEREST-ONLY AND NO LANDLORDS

ALTHOUGH the scheme will be most appealing to first-time buyers, so-called ‘second-steppers’ — those who already own a home — will also be able to benefit.

In particular, this will help families who have been stuck in small flats or houses but are desperate to move in order to get more space.

To qualify, the house must be in the UK, worth £600,000 or less, and the mortgage must be a full repayment loan (not interest- only) and cannot be for a second home or buyto-let. The loan must also not be any other kind of specialist offer, such deal, o ship o

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will be available through independent brokers later in the year. Potential customers will get an initial ten-minute check to see if they are eligible to apply and whether they might get accepted for a loan.

At Halifax and Bank of Scotland, the rules are slightly different. As well as over the phone or in a branch, you can apply online and even via an independent broker.

JUST 44 DEALS FOR FIRST-TIME BUYERS

THE number of people desperate to clamber on to the property ladder has rarely been higher. After the credit crunch, property prices went into reverse. Hardest hit were firsttime buyers. As cheap credit dried up, banks were no longer willing or able to offer hefty loans to those with a tiny deposit. This is because if property prices plummeted, they would be in negative equity — and, in the worst cases, run a greater risk of failing to repay these loans.

There has been a high price to pay for those who can’t afford to save for a bigger deposit. Currently, if you’ve got a chunky 30 pc saved up, the best deal is from Nationwide BS, which charges 2.39 pc for a two-year fix. On a typical £150,000 loan, the monthly payments are £665 and the overall cost is £16,059.

If you’ve managed to save a 20 pc deposit, the best two-year fix is from West Bromwich BS, also offering 2.39 pc and costing £665 a month. The total cost is £16,259 — slightly higher than the Nationwide one because of a fee.

But if you have only a 10 pc deposit and want a loan over the same period, the best rate i s with Skipton BS at 3.99 pc.

This works out at £791 with an overall total cost of £18,984 — £2,925 more than if you have 30 pc deposit.

In August 2007, a staggering 986 different loan deals were available for those who had only a 5 pc deposit. A year ago, there were just 69. Today it’s fallen to just 44 (excluding the new Help to Buy deals).

Today, the average two-year 95 pc rate has a rate of 5.08 pc, according to Moneyfacts data analyst.

For a five-year deal at 95 pc rate, it’s 5.20 pc.

At the moment, the average deposit put down by a first-time buyer is 20 pc, says the CML.

But for many that is an impossible task. With the average house price at £170,000, that means a typical deposit of £34,000 is needed. Now with Help to Buy, first-time buyers can get on the housing ladder with just £8,500 — a much more manageable sum, especially for two working people saving together.

The first part of Help to Buy already appears to have had an impact. According to the CML’s most up-to-date statistics, lending to first-time buyers has hit its largest quarterly total since 2007.

Between April and June, 68,200 purchased their first home. In June alone, its data showed 25,300 loans were advanced to first-time buyers — a 30 pc increase on the 19,400 loans advanced 12 months earlier.

First-time buyers accounted for 46 pc of all house purchase loans in June — up from 44 pc in May — and well above the 38 pc seen on average since 2007.

THE NEW YEAR MAY BRING LOWER RATES

ALTHOUGH some banks are expecting a flood of inquiries, there is really no rush. It will be January before many big names are offering Help to Buy loans, and this is when competition will really hot up.

The more banks enter the market, the cheaper rates could get.

Certainly, those such as HSBC which already have very competitive mortgage rates are expected to offer lower- cost deals than those being proffered by RBS and Halifax.

Don’t expect super- l ow deals, though, as there is still a fair amount of risk involved in this type of mortgage lending.

Help to Buy ends on December 31, 2016 — so there are three years for it to run. The same principles apply with this scheme as whenever you buy a house: the bigger the deposit you can afford, the cheaper your loan will be and the less at risk you are i f property prices should suddenly start to fall.

If you only put down a 5 pc deposit, then it doesn’t take much of a fall in house prices before you are in negative equity.

BEWARE OF COST HIKES IN THE FUTURE

WHILE Help to Buy is likely to ease the burden for many buyers today, there are two things to be wary of.

One comes from the dangers of a house price bubble.

If demand for properties soars, so could prices. However, bubbles tend to burst, and if prices suddenly crash, those who bought at the top with just a small deposit could be nursing losses and quickly plunged into negative equity.

The other danger is from rising interest rates. Many economists expect the Bank of England base rate to start rising before 2016. If this happens, mortgage rates are also likely to increase.

When the current mortgage fix deal ends, buyers may find that the cost of taking on a new loan is a lot more expensive.

If the Government’s guarantee has also gone by then, too, then rates could rise even further.

So although buyers have got on the property ladder, all that may happen is that they have stored up problems for the future.