From today, buyers can borrow up to £240,000 interest-free from the Government to purchase a new-build home in London. Here's our handy Q&A on the initiative.
Q. What is London Help to Buy?
A. London Help to Buy aims to help people purchase a new-build home in the capital. In return for a minimum deposit of just 5%, qualifying buyers will be offered a government-backed equity loan worth up to 40% of the purchase price, which remains interest-free for the first five years. It means buyers can secure a loan up to £240,000 on a London home with a £600,000 price tag - the maximum value permitted under the scheme.
Q. When does it kick off?
A. The scheme starts on 1 February, 2016 and is set to run until 2021.
Q. Where does it apply?
A. As the name promises, London Help to Buy is available on new-build properties in all London boroughs, including the City.
Q. Who is eligible?
A. London Help to Buy is open to both home movers and first-time buyers who can put down a minimum 5% deposit and who don't own another home (or even a stake in one). You will also need to be eligible for a mortgage on the part of the property that is not funded by the 5% deposit or government equity loan.
Q. Where can I get a mortgage?
A. Lenders that have signed up to offer mortgages under London Help to Buy include Barclays and Leeds and Nationwide building societies. Because the mortgage may only equate to 55% of the property value (5% being a deposit and up to 40% a government loan), interest rates are competitive. The minimum mortgage available is 25% of the property value.
Q. How much can I borrow?
A. The maximum you'll be able to borrow is 4.5 times either single or joint salaries. However, as existing debts and monthly outgoings will be taken into account, it may be less than this.
Q. How does it differ from other parts of Help to Buy?
A. London Help to Buy is an extension of the Equity Loan part of the Government's wider Help to Buy scheme, which launched in April 2013. The difference is that the London element doubles the 20% equity loan on offer to 40%, reflecting the higher property prices in the capital. You can find out more about the wider Help to Buy and other government schemes with our guide.
Q. How do various repayments work?
A. The mortgage element of London Help to Buy works like any other deal and is repaid every month at the interest rate agreed with the lender.
You don't make monthly repayments on the equity loan element, which is interest-free for the first five years. In year 6, 'loan fees' (interest) of 1.75% kick, which rises by the Retail Price Index (RPI) measure of inflation plus 1% every year thereafter.
The equity loan is only repaid when you come to sell your home (at 40% of your home's prevailing value) OR after 25 years. If the value of your home goes down, you will still only pay back 40% of its market value.
You can choose to repay chunks back of the equity loan – known as staircasing – at any time. But, you'll need to have deep pockets because each repayment must be at least 10% of the prevailing property value.
Q. Where do I start?
A. If you are interested in London Help to Buy you will need to find a developer that is working with the scheme and then register your interest. You can take both of these steps on the Government's dedicated website.
LONDON HELP TO BUY IN NUMBERS
- Buyers need a minimum 5% deposit
- The equity loan is worth up to 40% of the property value
- The loan is interest-free for the first 5 years
- It is available on new-build homes worth up to £600,000 in London and Greater London
Check out these related articles:
What’s your view on London Help to Buy? Tell us by posting a comment: