London Help To Buy Scheme Now LIVE!

22nd February 2016 posted in Property News Home Lifestyle Sellers Buyers

The London Help To Buy scheme is now live and applications are being accepted for buyers to request for equity loans of up to 40%. 
The launch of the scheme has been much awaited by buyers in the UK capital, since the go-ahead was confirmed by Chancellor of the Exchequer George Osborne in the Autumn Statement. The scheme could make it possible for aspiring home buyers to get a foot on the London housing ladder. 

Much Awaited Helping Hand  

The launch is of course exciting news for the capital. The high cost of housing in the UK has dominated much of the real estate headlines for many years, and has kept many people – especially Millennials – simply priced out of the market up and down the nation. 
London in particular is infamous for its high cost of living, with prices soaring out of reach for the vast majority of young buyers – but the new scheme poses itself as being the helping hand needed to give those buyers a boost to reach them. 
Indeed, London Help To Buy actually replaces the Help To Buy Equity Loan Scheme in London, which previously provided loans of up to 20% of the home’s value. This makes the new scheme “twice as generous”, which is a reflection on the currently soaring house prices in London.  
So, how will the London Help to Buy scheme work, who is eligible, and what will it mean for the capital?

London Help To Buy Scheme Explained

In A Nutshell 

The scheme is only available to those looking to buy a new build property in London. It will provide buyers who have managed to raise a 5% deposit with a loan of up to 40% of the value of the home, interest-free for 5 years. This means that buyers will need a 55% mortgage to make up the rest.

The Main Points:

  • It applies to new homes worth up to £600,000 in any of the London boroughs and the City of London
  • There is no age limit imposed on applicants
  • You must be eligible for a mortgage to qualify for the scheme and your mortgage must be for at least 25% of the property's value
  • It is only open to UK residents living in the UK
  • It is administered and applied for via your mortgage lender
  • You must repay the loan after 25 years or when you sell your home
  • When the five years’ interest-free period expires you will pay 1.75% annual interest on the loan in addition to RPI (Retail Price Index) Inflation plus 1%

How It Works 

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Buyers who are eligible for the scheme can borrow up to 40% of the value of the new build home that they are looking to buy. However, they are not obliged to take the full 40% if they don’t want to. Indeed, Help To Buy can be used even when people have managed to raise more than 5% of the deposit themselves as well. 
For the first 5 years, the loan from the government is interest-free – although a management fee of £1 a month will be applicable from the date of purchase.
Once this 5-year interest-free period comes to an end, borrowers will be charged a fee of 1.75% on the loan’s value. This fee will increase annually at 1% above inflation. 
Borrowers need to be aware that these fees only count towards the repayment of the Government loan, and come on top of mortgage repayments.  
The equity loan is for a maximum of 25 years, or must be paid back in full when the home is sold or the mortgage redeemed – whichever term is the shorter of the two.

The Impact

The new scheme is likely to make a huge difference to those living and working in the UK capital, lowering the barriers of entry into the housing market for many. Talking to the BBC, Adrian Anderson of property finance specialists Anderson Harris, said:
"Take the example of a one-bed flat in Camberwell on the market at £360,000," he said. "A 5pc deposit works out at £18,000, but without Help to Buy you then need to raise a mortgage for the remainder, which requires earnings of circa £85,000, pricing out many buyers.
"Under London Help to Buy, a 40pc interest-free loan would be available, leaving you with a mortgage of just £198,000 to raise. This could be done with an income of £50,000, which is much more achievable in the capital." 
Indeed, data from Halifax published on Monday showed the average first-time buyer in London spent £367,990 in 2015, while the average deposit was £91,409. To spend the same amount with a 40% loan the same buyer would need a deposit of just£18,399.

The Critics

The scheme does of course have its critics. Housing expert Henry Pryor is quoted in The Guardian:
“First introduced as a measure to encourage house builders to take off the tarpaulins off their moth-balled sites and get building again after the 2007-8 crash the initiative has worked well with more homes being built but the byproduct is toxic - higher prices that require even more help to buy,” he said.
“Results from the quoted developers illustrates who is really being helped and a London version of the scheme is wrong both from a moral and practical perspective. There are no work-shy builders in the capital, in fact we need more sites to satisfy demand. Giving people help to afford what they otherwise could not is potty and will end in tears.”

Final Word

If you're a struggling first-time buyer trying to scrape together a deposit in London, then the Help To Buy Scheme could be exactly what you’re looking for to get on the property ladder. 
Contact us here at Hunters and we’ll give you the advice you’ll need to see if this is the mortgage scheme for you.