Virgin and Aldermore join Help to Buy

Challenger banks Virgin Money and Aldermore have joined the government's Help to Buy scheme in a bid to help new buyers purchase their first home.

The banks are both offering fixed-rate mortgages at 90% and 95% loan-to-value, with Virgin offering terms up to five years.

Virgin’s rates for buyers with a 5% deposit start at 5.29% for a two-year fix, while a three-year fix will cost 5.39% and a five-year fix will cost 5.49%.

The two-year deal is bettered by other Help to Buy deals from the RBS Group (4.99%) and elsewhere, while three-year deals are available for as little as 3.75% (Monmouthshire).

But Virgin’s five-year deal does match the best Help to Buy offer available at that term.

The mortgages have no arrangement fee, which is an advantage, and buyers will be able to claim £300 cashback to put towards other costs such as legal and valuation fees or Stamp Duty charges.

Buyers able to raise a 10% deposit will be able to save up to one whole percentage point from these rates through Virgin, which has also decided to offer 90% LTV loans through the guarantee scheme.

90% mortgages will start at 4.29% for a two-year fix, with a three-year fix costing 4.69% and a five-year fix costing 4.89%.

Though cheaper options are available to buyers at this loan-to-value range, only the Monmouthshire deal is fee-free, which makes Virgin's cashback-laden offer more competitive overall.

Anthony Mooney, Director of Financial Services at Virgin Money, said that the positive response to the scheme had led the bank to join earlier than planned.

"It is encouraging to see that the scheme has got off to a strong start, and we are pleased to be widening the choice of products available to those looking to get on to or move up the housing ladder," he said.

With no fee and £300 cashback, Virgin's new 90% mortgage competes well for relatively low value loans.

Aldermore, one of Britain’s newest banks, will offer re-mortgages as well as new purchases through Help to Buy.

The bank’s two-year fix at 95% LTV undercuts the Virgin deal by a fraction, at 5.28%, but a £999 fee does make it more expensive than other participating deals.

For a similar fee, deals can be found at much cheaper rates at the same loan-to-value range (e.g. RBS / NatWest at 4.29%), while HSBC’s no-fee deal at 4.59% also comprehensively outguns the smaller lender.

Rise of the Challenger

The banks are both hoping to provide a strong alternative to the big high-street lenders, who have been known to reject applicants because of contentious or disputed issues with their credit files.

Rejections have been made over even more trivial issues, such as formatting inconsistencies with customers’ personal details.

(How do you access your credit file to check for errors? Find out in our new guide.)

Large banks also tend to operate centralised decision-making systems which cannot be overruled.

The launch of TSB in September saw its boss, Paul Pester, promote simpler ‘local’ banking. But even he had to admit that lending decisions would remain centralised as long as the bank remained under Lloyds’ risk parameters.

Therefore, space remains in the market for local lenders and more-widely accessible challenger banks to offer high loan-to-value mortgages to those who have experienced little joy with larger lenders.

Aldermore's director of residential mortgages, Charles Haresnape, said: "We are committed to lending to home-owners in the UK, especially those with small deposits, to get on the housing ladder and those who are unable to access mortgages from traditional high street lenders, despite being creditworthy.”

Despite the sympathies shown by smaller lenders, experts are warning aspiring homeowners to be wary of exceeding overdraft limits or missing credit card payments over the festive period, which could damage their credit rating and affect their chances of securing a mortgage.

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