What is London Help to Buy?
Under the government's London Help to Buy scheme, people buying a new-build home in Greater London can apply for an equity loan of up to 40% of the property's value.
London Help to Buy equity loans are available to first-time buyers and existing homeowners looking to buy a new-build property.
With London Help to Buy, the government will lend you up to 40% of the property’s value (compared with 20% if you were buying outside London). You then need to put down a deposit of at least 5% and get a mortgage to cover the remaining 55% of the property price.
So if you wanted to buy a house for £200,000 with a 5% deposit, you'd need:
- £10,000 (5%) deposit
- £80,000 (40%) equity loan
- £110,000 (55%) mortgage
The benefits of using London Help to Buy
- You will only need a 5% deposit (as opposed to the 10% usually required by mortgage lenders if you don't have an equity loan)
- As you're taking out a smaller mortgage, it will be easier for you to prove to lenders that you can afford the monthly mortgage repayments
- Borrowing a smaller proportion of the property's value from a mortgage lender gives you access to better mortgage rates
Am I eligible for London Help to Buy?
To qualify for London Help to Buy, you need to:
- Be buying a new-build home worth £600,000 or less
- Have a deposit of at least 5%
- Not let out the property or use it as a second/holiday home
Applying for London Help to Buy
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. Visit the official London Help to Buy website to see the registered house builders list.
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.
Paying back a London Help to Buy equity loan
When it comes to paying the loan back, London Help to Buy works in the same way as the main English Help to Buy scheme:
- 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.
- After year six, the admin fee will go up each year 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. As the loan is for a percentage of your property rather than a set cash value, you'll 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. This is known as 'staircasing'.
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.
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.
Correct as of date of publication.