New Help to buy scheme offers interest-free loan covering 40% of the price of a new-build property in London
The government has recognized the additional hurdles that first-time buyers in London must overcome and has launched a special scheme for the capital to help more young people get on the property ladder.Estate agents in London have long been aware that rising property prices in the capital, together with high rents demanded by landlords and low pay rises, hinder anyone wanting to buy a home in the capital.
Brixton estate agent Eden Harper reports that first-time buyers need an annual income of £77,000 to get on to the property ladder in London. However, the government’s London Help to Buy Mortgage Scheme could help tackle this problem. To give first-time buyers in London a financial boost, the government will lend them up to 40% of the cost of a new-build home – if they scrape together a deposit of at least 5%.
The London Help to buy scheme operates in a similar way to the government’s existing equity loan scheme that allows first-time buyers to borrow 20% of the cost of a home. The London scheme, announced in December, 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, but they must be eligible for a mortgage to qualify and the mortgage must be for at least 25% of the property’s value.
To gain access to the interest-free portion of the funding, applications must be made via the home purchaser’s mortgage lender. Although the government-backed portion of the funding does not need to be repaid for 25 years – or if the home is sold before that date – when the five-year interest-free period expires borrowers will pay 1.75% annual interest on the loan in addition to RPI plus 1%.
Buying into this scheme means a mortgage of just 55% can be taken out and the additional 40% can be delayed. If coupled with the Help to Buy ISA, which provides a 25% bonus on savings made towards buying a house, there would be a saving on the deposit too.
However, a new study by mortgage lender Halifax reveals that a first home in London cost an average of £367,990 in 2015 and requires buyers to raise a deposit of £91,409. The study also shows the number of people in the UK getting on the property ladder in 2015 fell by 0.5% in 2015 to 310,000 when compared with the previous 12 months.
Estate agents doubt whether this new Help To Buy funding will encourage more Londoners to get on the property ladder.
A spokesman for Assetgrove – a London-based property management company that helps landlords maximize their rental income – points out that saving the 5% deposit is very often the sticking point. He asks: “With average monthly rents in London now topping £1,500 and average salaries about £35,000 per year, how can first-time buyers save the £26,000 that they require?”
And a spokesman for central London agency Plaza Estates adds the majority of first-time buyers that we deal with are property investors based overseas. The Help To Buy scheme is only open to UK nationals, who are more likely to be interested in rental properties. But skip hire broker ProSkips reports many of its construction sector customers are working on large-scale housing projects. A large number of these properties are aimed at first-time buyers and developers often offer incentives such as a contribution towards the deposit.
The London Help To Buy scheme may not help every tenant in the capital onto the property ladder, but it promises to help more than the 3,128 Londoners that used the previous scheme.
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