Help to buy London launches, but expert questions its reach
Scheme will open ‘relatively few doors’, critic says, as lenders line up to offer sub-2% deals
The colour of money … A family earning £40,000 could buy a property costing £327,250 in London, but in most boroughs the average price is much higher.
A government scheme offering homebuyers in London interest-free loans of up to £240,000 has gone live, but critics say it will open “relatively few doors” for priced-out households.
Help to buy London is an extension of an existing scheme which offers loans for buyers of new-build properties, allowing them to purchase a home with a deposit of just 5%.
While outside the capital buyers can borrow up to 20% of a property’s cost, in London that has been doubled to 40%.
Help to buy London: what you need to know
The extension, which was announced in the chancellor’s autumn statement, will be available to buyers of new properties in Greater London costing up to £600,000. As under the existing scheme, borrowers will need to qualify for a normal mortgage.
They will also have to show they can afford interest payments on the government loan when the five-year interest-free period ends.
The extension follows another year of rising house prices in London, with Land Registry figures showing a 12.4% increase in 2015, which took the average cost of an existing home to £514,097.
The housing minister, Brandon Lewis, said: “Help to buy has now helped over 130,000 people across the country achieve their aspiration of buying a new or bigger home.
“The scheme is helping people turn those dreams into a reality with a fraction of a deposit they would normally require, and from today the new London scheme will help even more people follow in their footsteps.”
However, Ed Stansfield, chief property economist at Capital Economics, said the scheme was not as generous as it first looked.
A family with a £40,000 income could buy a property costing £240,000 with the scheme outside London and £327,250 in the capital, but in most London boroughs the average price of a property is much higher.
To achieve the £525,000 which would be needed for a comparable property, Stansfield said, the London household would need an income of £64,000 and a larger deposit.
“In terms of its direct impact on a buyer’s monthly outlays, Help to buy London appears to be a significantly more generous subsidy than the original equity loan scheme it supplements,” he said. “But in other important ways it is notably less generous. On balance, compared to the original scheme, we believe Help to buy London will open relatively few doors.”
Unaffordable country: where can you afford to buy a house?
Funding for the scheme comes from the £8.6bn budget set aside to extend the help-to-buy equity loan scheme from April 2016, when it was originally due to end, to March 2021.
By the end of September 2015 3,548 households had used an equity loan to buy properties in the capital, and the government has said more than 10,000 more could benefit from the new scheme.
Ten lenders, including Halifax, Lloyds and Nationwide building society, are offering mortgages under the scheme, and rates are low. At Nationwide buyers can take out a two-year loan tracking the base rate with a starting cost of 1.64%, while a five-year fixed-rate mortgage is available at 2.64%.
Although the interest starts at 1.75%, lenders are checking that repayments can be met at up to 4%, meaning that someone borrowing the maximum £240,000 would have to show they could afford to pay £800 a month on top of their mortgage and other outgoings.