Pedestrians pass a branch of a NatWest bank, part of the Royal Bank of Scotland Group Plc (RBS), in London, U.K., on Tuesday, April 16, 2013. The U.K.'s consumer-finance regulator is probing technology failures at Royal Bank of Scotland Group Plc, which left some customers at the lender's NatWest and Ulster Bank units unable to withdraw money. Photographer: Simon Dawson/Bloomberg
First time buyers boosted by NatWest decision © Bloomberg

NatWest has unveiled home loans aimed at buyers with a 5 per cent deposit, as the bank stakes a claim to the higher-risk loan market ahead of the closure of the government’s Help to Buy mortgage guarantee scheme.

The lender, which is owned by state-backed Royal Bank of Scotland, is the first big high-street bank to make a public commitment to continue to offer a mortgage at 95 per cent loan-to-value since the government announced the end of the scheme.

The new mortgages will retain the rates offered under NatWest’s Help to Buy deals, with a two-year fixed rate at 3.69 per cent and a five-year fixed rate at 4.59 per cent.

Lloyd Cochrane, NatWest head of mortgages, said the bank was “committed” to helping first-time buyers realise their ambition to purchase. “That’s why today we are promising to continue to lend to those with smaller deposits.”

The Help to Buy scheme, which is due to be withdrawn on December 31, applies to any home valued at less than £600,000 in England. Under its terms, the borrower contributes a 5 per cent deposit but the government backs another 15 per cent to reduce the default risk to lenders.

Other parts of the Help to Buy scheme — an equity loan scheme and the Help to Buy Isa — will continue to be offered.

Mortgage industry experts expect other lenders to follow NatWest’s lead as they jostle for business in a highly competitive environment with rates at record lows. Charlotte Nelson, of finance website Moneyfacts.co.uk, said: “I think the majority of providers who were offering Help To Buy will most likely offer an alternative at 95 per cent.”

Many lenders already offer 95 per cent mortgage deals both within and outside Help to Buy. Moneyfacts.co.uk said there were 251 deals currently on offer, 76 of which were part of the Help to Buy scheme — a slight decline on the 270 available in March.

Average rates on two-year fixes have fallen during the same period from 4.16 per cent to 3.92 per cent. Lenders include Nationwide, Halifax and a host of smaller building societies that are not participating in the Help to Buy scheme.

Aaron Strutt, of mortgage broker Trinity Financial, said rates improved dramatically if a buyer was able to raise a 10 per cent deposit. “Sometimes you only need raise another few thousand pounds to fit into the cheaper rate band,” he said.

NatWest, for instance, is charging 2.83 per cent on its two-year fixed rate deal for those with a 10 per cent deposit; and 3.68 per cent for its five-year deals.

Ian Gordon, an analyst at Investec, said: “I can understand why NatWest in particular has a reason to consider extending its 95 per cent offer, as it has a surplus of deposits to put to work.”

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