Home buyers in London to get extra help form the Government
Business leaders warn that London’s housing crisis threatens to damage the city’s status as a global powerhouse.
The shortage of affordable homes in the capital is blamed on rising property prices, the availability of low-cost finance and a failure to build enough new housing to cater for London’s growing population.
But there is help available from the government, says London Bridge estate agent Williams Lynch.
A London-only Help To Buy equity loan scheme allows first-time home buyers who raise a 5% deposit for a new-build property in any London borough to borrow up to 40% of the purchase price from the government.
The 40% government loan is interest-free for five years, and after that time borrowers will be charged at a rate of 1.75% of the loan’s value. This fee will increase every year at 1% above the rate of inflation.
Central London estate agent LDG says this gives first-time home buyers the opportunity to move out of the suburbs and live in a luxury flat in the heart of the capital.
But any home buyer taking advantage of the government’s generosity needs to plan for the future. If the property is sold before the 40% loan is cleared must use the proceeds of the sale to settle the debt and not fund another purchase.
Although the London-only Help To Buy equity loan scheme, which launched in February, is open to people who have previously owned property, its rules state: “You must not own any other property at the time you buy your new home.”
Other conditions attached to the deal include…
- The new-build property must be in a London borough or the City of London
- The purchase price must be no more than £600,000
- Purchasers must live in the property and not sub-let it
- You must buy your home from a registered Help To Buy builder
Mortgage guarantee scheme
A second element of the government’s Help To Buy scheme is available for purchasers of both new-build homes and older properties.
Like the Help To Buy equity loan, the mortgage guarantee scheme is available to first-time home buyers and home movers who raise a 5% deposit towards the purchase of a property worth up to £600,000 – on the condition that the purchase will be their primary residence and not sub-let.
This upper limit is higher than the average price of a home in London, which the Land Registry says was £530,368 in February 2016.
But North London estate agent Paramount Properties questions whether the mortgage guarantee scheme will help tenants in London onto the property ladder.
Under this scheme – which cannot be used in conjunction with any other assistance such as shared ownership or shared equity – the government provides the mortgage lender with a guarantee for a further 15% of the property’s value.
This guarantee is a behind-the-scenes arrangement between the lender and the government.
A large number of mortgage lenders are taking part in the scheme, including Bank of Scotland, Barclays, Halifax, HSBC, Lloyds Bank, NatWest, RBS and Santander.
However, when purchasers apply for a mortgage under the Help to Buy guarantee scheme, they will be subject to the same checks as any other home loan application. This includes being able to prove that they can afford the mortgage repayments.
While there is no limit on an applicant’s of income, this element of Help To Buy cannot be used with any other publicly-funded mortgage scheme or an interest-only home loan. And at the time of writing some lenders, such as HSBC, set a maximum mortgage limit of £400,000 with a 25-year repayment term.
The two elements of Help To Buy are unlikely to be a solution to the capital’s housing crisis. But it does give first-time buyers who are on the verge of saving enough money to fund a property purchase the assistance they need to turn their dream of home ownership into reality.