The Government’s Help to Buy Scheme, particularly the Help to Buy Equity Loan Scheme, has been successful in helping first-time buyers get onto the property ladder.
What has been less successful however, is the effect of the Help to Buy Scheme in London.
London property prices, as ever, are well above the UK average and first-time buyers find it particularly difficult to get a foothold in the London property market.
As a result of this the Chancellor announced last year an extension of the Help to Buy Equity Loan Scheme aimed at London buyers – London Help to Buy.
What is London Help to Buy?
London Help to Buy works in the same way as the standard Help to Buy Equity Loan Scheme, where the first-time buyer puts down a minimum 5% cash deposit on a newly built property, obtains an interest-free Government loan for a proportion of the property, and a residential mortgage on the remainder.
Maximum purchase price under the standard Help to Buy Equity Loan Scheme is £600,000 and this has not changed for London Help to Buy. The difference under the London Help to Buy Scheme is the size of the interest-free loan.
40% Interest Free Loan
Whereas, under a usual Help to Buy Equity Loan purchase outside of the Capital, the interest-free loan offered is 20% of the purchase price, this is been extended to 40% of the purchase price for London Help to Buy.
This means that the first time purchaser in a London Borough can put down a 5% cash deposit, borrow 40% interest-free via the Help to Buy Scheme, and obtain a mortgage for just 55% of the purchase price.
What does London Help to Buy look like in practice?
If we look at the actual figures involved in London Help to Buy based on the full purchase price available of £600,000 they look like this:
Deposit 5% = £30,000
Interest-free Equity Loan 40% = £240,000
Mortgage 55% = £330,000
Under the previous standard Help to Buy Scheme, a first-time buyer would be looking at raising a mortgage of £450,000.
Given that the maximum income multiples for mortgage under the Help to Buy Equity Loan Scheme are 4.5, our buyers would need an income of £100,000 to make the purchase.
Under the London Help to Buy Scheme mortgage requirement is just £330,000 and the purchase is theoretically in reach for first-time buyers earning £73,000. A realistic figure for many joint applicants first-time buyers in London.
How to Buy a brand-new £600,000 home in London at £1,436 per month
The figures look like this:
Stamp Duty £20,000
Legal Costs £2,000
Capital required: £52,000
Mortgage (£330,000): £1,436 (based on 25 year term 1.55% fixed rate mortgage)
Where do we find £52,000 Capital?
Many first-time buyers will have applied themselves to saving as much as possible to buy a home. Others may be able to get support from family.
Example – bank of Mum and Dad withdrawal
If your parents have property which has equity in it, they may be prepared to use some of the equity to support you in purchasing your first home.
As an example, a loan of £52,000 might cost around £400pm to service – under £100 per week get you on the property ladder.
London Help to Buy – what is available?
Wembley Park Gate – Barrett Homes – 2 bed executive apartments £503,000
Capital required £42,300/Monthly Payments £1,042
Alternative in the rental market studio flat (no bedroom) £1,300 pm
Greenland Place SE8 – Barrett Homes – 1 bed executive apartments £411,000
Capital required £33,100/Monthly Payments £983
Alternative in the rental market one bed flat £1,430 pm
Lawrence Square Tottenham – Bellway Homes – 3 bed terrace home £599,995
Capital required £52,000/Monthly Payments £1,436
Alternative in the rental market one bed flat £1,410 pm
For advice on London Help to Buy Mortgage lending call us now on 020 8979 9684