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Better savings rates wanted over Help to Buy

More potential home buyers have said that they would rather have been offered better savings rates to help them save to buy a home than the cheaper credit that has been made available from mortgage lenders under the Government’s Help to Buy scheme.

Savings accounts have seen the fastest rate of withdrawals in almost four decades, as meagre returns, most of which are well below the rate of inflation, force savers to take other options. In total £23bn was withdrawn from long-term savings accounts over the last twelve months.

The Mortgage Advice Bureau says that many who choose to withdraw the savings either spend the money, or move it to a current account, where they have easy-access to the money. Figures from research conducted by the Mortgage Advice Bureau show that 47pc would rather the Government had commissioned a scheme to encourage banks to offer higher savings rates, compared to 45pc who have stuck by the scheme to offer 95pc loan-to-value mortgages.

Under the Help to Buy scheme, the Government guarantees up to 15pc of your loan, meaning that in order to get a real-term 20pc mortgage, you need just a 5pc deposit. For lenders this takes a lot of the risk out of the loan, and means they can offer mortgages to those who would otherwise miss out.

While saving more money for a higher deposit will save borrowers a sizable amount over the long-term, as opposed to borrowing more than they can really afford, support for Help to Buy has remained due to the fact that it provides an immediate solution for those looking to buy a home.

Brian Murphy, head of lending at the Mortgage Advice Bureau, echo’s this: “Offering high interest rates on savings to remove the need for the 95pc 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 20pc deposit on a home”.

Savings rates have fallen since the introduction of Funding for Lending and Help to Buy, both Government initiatives, as banks and building societies move from relying on savers’ cash and place more emphasis on those borrowing money from them for mortgages and business loans.

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