The new London Help to Buy scheme launches today, offering extra assistance to first-time buyers and home-movers in the capital.
The scheme allows Londoners to buy a home with a deposit of 5% and a mortgage as low as 55%, with the remaining 40% offered as an equity loan from the government.
How does London Help to Buy work?
London Help to Buy equity loans are available to first-time buyers and existing homeowners who buy a new-build property.
The scheme allows Londoners to take out bigger equity loans than buyers elsewhere in the country.
The government will lend you up to 40% of the property’s value, compared to 20% using the standard Help to Buy equity loan scheme outside of London.
To use London Help to Buy you’ll need to have a deposit of at least 5% and be able to obtain 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:
- £10,000 deposit
- £80,000 equity loan
- £110,000 mortgage.
The equity loan has some key benefits. By only borrowing 55% of the property’s value, you should be able to access better mortgage rates, and it’ll also be easier for you to prove to a lender that you can afford a mortgage.
If you’re considering using London Help to Buy, you can get tailored, impartial advice about your mortgage options from Which? Mortgage Advisers on 0808 252 7987.
How do I get a London Help to Buy equity loan?
You’ll need to apply for the equity loan through a registered Help to Buy house builder, and for a mortgage separately via your chosen lender or mortgage broker.
Ten lenders have signed up to offer London Help to Buy so far. They are: Aldermore, Bank of Scotland, Barclays, Halifax, Leeds BS, Lloyds Bank, Nationwide, Natwest, Royal Bank of Scotland and Teachers BS.
To be eligible for a London Help to Buy loan, you need to be buying 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.
Find out more: London Help to Buy – check out our full guide
London Help to Buy equity loans: What will I have to pay?
Help to Buy equity loans are offered interest-free for the first five years. After this, you’ll need to pay a monthly admin fee, which starts at 1.75% of the loan.
This 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 the cost of the admin fee could become quite expensive over time..
You’ll need to repay the equity loan in full after 25 years, when your mortgage term finishes or when you sell your home.
You’ll have to repay the market value of the loan at the time, not the cash amount that you first borrowed, although you can choose to repay part of the loan early, in chunks of either 10% or 20% of the total value.
- How to save for a mortgage deposit – take the first steps to home ownership
- Am I ready to be a first-time home buyer? – ask yourself the key questions
- How much mortgage can I afford? – do your research in advance
Your home may be repossessed if you do not keep up repayments on your mortgage.
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