This week saw the launch of the much heralded or much derided, depending on your views, Help To Buy London Scheme.
The original Help To Buy was initially a scheme to give house builders confidence that there will be buyers for their product if they build the homes, as people were struggling to get mortgages.
Whilst this gave borrowers a Government loan of up to 20%, it worked well only outside London where the take up was on smaller loans for First Time Buyers, which to be fair was exactly the target. However there was very little impact in London, in fact it hardly made an tiny dent.
So the cunningly named Help To Buy London was instigated and we thought it worthwhile to look at the main points:-
- This gives borrowers up to a 40% loan on a New build Property up to £600,000 in 32 London Boroughs
- The buyer must put in 5% themselves and there is no applicant age limit, but applicants must be UK residents and either FTB’s or Home movers
- The loan part is charged at 0% interest over the first 5 years, then interest is charged at 1.75% in year 6 and increases at 1% above inflation each year – this is charged as an annual fee paid monthly
- The loan can be repaid when the property is sold, (i.e. 40% of the sale price), in installments when the borrower can afford it or after 25 years.
- Lenders will take into account the loan part when they calculate affordability, some assuming a rate of 3% which they deduct from income before running the affordability tests
- 10 lenders so far are offering products Aldermore, Bank of Scotland, Barclays, Halifax, Leeds, Lloyds, Nationwide, RBS, Precise & Teachers
It is very important that anyone considering this option should take proper advice to ensure that they are aware and think about what happens in 5 years’ time when rates are higher and they have the fee to pay on top.
An Example :-
Purchase Price £600,000
5% deposit = £30,000
40% Loan = £240,000
Therefore a £330,000 mortgage is required.
On the face of it, it is a good scheme that not only gives builders confidence to build more, but will help a good number of borrowers struggling with the deposit to finally buy.
There is some concern that it is another artificial prop that encourages the demand side, pushing prices up further and leaving people exposed when the market normalises and schemes like this are no longer available.
Rates will rise at some point and there is no guarantee that house prices will continue to rise forever.
It will also still be an affordability challenge for many, especially at the lower end of the earnings ladder and my concern is that, with social housing being decimated, there is still very little being done for those key workers that London needs to thrive.
These schemes are all well and good but they do not solve the more serious deep-rooted housing problems we have in the capital of a lack of affordable housing for all.
It will be interesting to see the overall effect of the scheme but initial enquiry levels will no doubt be high.