London Help to Buy

First-time buyers

London Help to Buy

By Marie Kemplay

Article 5 of 8

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London Help to Buy

Discover how London Help to Buy offers extra help to first-time buyers and home-movers in London.

People buying a house or flat in London can apply for an equity loan of up to 40% of a new-build property's value.

How do London Help to Buy equity loans work?

London Help to Buy equity loans are available to first-time buyers and existing homeowners looking to buy a new-build property. 

Under London Help to Buy, first-time buyers in the Greater London area are able to take out bigger equity loans than buyers in other parts of the country.

The government will lend you up to 40% of the property’s value (compared with 20% if you were buying elsewhere in the country). To make full use of the scheme, you will need to put down a deposit of at least 5% and get a mortgage to cover at least 55% of the property’s value.

So if you wanted to buy a house for £200,000 with a 5% deposit you would need a:

  • £10,000 deposit
  • £80,000 equity loan
  • £110,000 mortgage.

Using an equity loan rather than going it alone has several benefits: you will only need a 5% deposit and, as you’re only borrowing 55% of the property's value, you will be able to access better mortgage rates.

As you are borrowing less, it will also be easier for you to prove to a mortgage lender that you can afford a mortgage.

How do I get a London Help to Buy equity loan?

To apply for a London Help to Buy equity loan, you will need to purchase a property through a registered Help to Buy house builder. 

You'll have to apply directly to the house builder for the loan and then apply for a mortgage separately via your chosen lender or mortgage broker

Most big banks and a number of larger building societies are signed up to the scheme. 

To be eligible for a Help to Buy loan, you need to be looking for a new-build home and must also:

• have a deposit of at least 5%
• be looking to buy a home worth £600,000 or less
• be purchasing a property you intend to live in most of the time
• not let out the property or use it as a second home

London Help to Buy equity loans: what you'll have to pay 

London Help to Buy equity loans work in the same way as existing Help to Buy equity loans:

  • The loans are interest-free for the first five years.
  • After the first five years, you have to pay a monthly admin fee, which starts at 1.75% of the loan.
  • The admin fee will increase every year after year six by any increase in the Retail Prices Index plus 1%.
  • The equity loan from the government will not decrease in size (unless you opt to repay part of it early). So, over time, the cost of the admin fee could become quite expensive.

You will need to repay the equity loan in full after 25 years, when your mortgage term finishes or when you sell your home – whichever happens first. You have to repay the market value of the loan at the time, not the cash amount that you first borrowed. You can also choose to repay part of the loan early, in chunks of either 10% or 20% of the total value. 

London Help to Buy equity loans: an example

The way that Help to Buy loans work means that you could end up paying back more or less than the amount you first borrowed, depending on whether your property increases or decreases in value (or stays the same).

This is how it could work in practice:

  • You take a 40% equity loan to buy a property worth £200,000, so the equity loan value is £80,000.
  • When you come to sell, the property is worth £250,000.
  • You repay £100,000 – this is 40% of the new value of your home, not the amount you borrowed.
  • Last Updated: August 2016
  • Updated by: Marie Kemplay