Virgin Money is offering borrowers who buy a property using a Help To Buy: Equity Loan £3,000 if they sign up for a three or five-year fixed rate mortgage.
Called the ’Stamp Duty Buster’ mortgage, Virgin Money says the cash will help borrowers with the costs of buying a new home, which include Stamp Duty, legal fees and valuation costs.
What is a Help to Buy: Equity Loan?
Help to Buy is a programme the Government launched last year, which aims to help buyers purchase their first property with just a 5% deposit. Help to Buy is made up of two separate schemes, the Equity Loan and the Mortgage Guarantee.
With the Equity Loan, you get a mortgage worth 75% of the property's value from a lender participating in the scheme, and an equity loan from the Government worth 20% of the purchase price. The loan from the Government is interest-free for the first five years. For more on how both types of Help to Buy work, read Help to Buy mortgages explained.
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What is Virgin offering?
The mortgages which are eligible for the £3,000 cashback are a three-year fixed rate at 3.69% with a £995 product fee, and a five-year fixed rate at 3.99% also with a £995 product fee.
[SPOTLIGHT]Virgin’s Stamp Duty Buster products are only available on properties with a price between £125,000 and £250,000.
Other products in Virgin Money’s Help to Buy: Equity Loan mortgage range remain unchanged and available for properties worth up to £600,000. Other deals offer £800 cashback which borrowers can use to help with the general cost of moving home.
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How does Virgin compare over three years?
If you bought a property with a purchase price of £250,000 using a 5% deposit and 20% equity loan, you’d need a mortgage of £187,500.
Looking first at Virgin’s three-year fix at 3.69% with a £995 fee and assuming a repayment mortgage over 25 years, a borrower would pay £957.88 a month. Over three years this would equate to £34,483.68.
Once you factor in both the £995 fee and £3,000 cashback the borrower would pay a total of £32,478.68 over the three-year period.
Skipton Building Society offers a three-year fixed rate Help To Buy mortgage at 3.19% with no fees and £500 cashback.
Someone borrowing £187,500 on this deal over 25 years would pay £907.78 a month, a total of £32,680.08 over three years. Once the £500 cashback is taken into account, the total falls to £32,180.08.
So the Skipton deal works out £298.60 cheaper. It’s also worth pointing out that the Skipton Help To Buy mortgage can be used up to the maximum purchase price of £600,000.
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…. And over five years?
Again, let’s assume you bought a property with a purchase price of £250,000 using a 5% deposit, 20% equity loan and a £187,500 mortgage, over 25 years.
Virgin’s five-year deal at 3.99% would mean monthly payments of £988.65. Over five years this adds up to £59,319. Add on the £995 product fee and take off the £3,000 cashback and the total paid drops to £57,314.
Again, Skipton has a comparable mortgage for Help To Buy customers. It’s offering a five-year fixed rate at 3.79% with no fees and £500 cashback.
On a mortgage of £187,500 this would equate to monthly repayments of £968.08. Over five years, and taking the cashback into account, this would mean Skipton customers would pay £57,584.80.
So when you compare five-year products Virgin’s cashback deal comes out the winner, being £270.80 cheaper.
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Doing the sums
Comparing Virgin Money’s new products shows just how important it is to do the sums when comparing mortgage deals. Borrowers need to take the rate, fees and any cashback all into account.
It’s best to work out the total cost over the fixed term of the deal – so for a two-year fixed rate it will be two years, and a five-year fixed rate it will be five years. This is because most people remortgage or switch deals when the fixed term comes to an end.
What works out to be the best mortgage product for one mortgage amount might not be the best for another. This is because the effect of the rate and fees will vary depending on how much you borrow. As a rule of thumb, the bigger the mortgage the more important the rate and the less important the fee.
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