Help to Buy not Helping to Buy
The new, extended London Help to Buy scheme (which will be fully launched early next year) is designed to help first-time buyers in the capital get onto the property ladder in the face of every increasing house prices. Currently, the average property in London costs £503,431 ñ over two and a half times the nationwide average of £186,350.
Under the scheme, the government offers a loan worth 40% of the value of a property to potential first time buyers who can, themselves, save up for a deposit of 5%. This is a move up from the 20% loan offered by the previous (and current for the rest of the country) Help to Buy scheme. The scheme applies to new build properties in London, and Osborne pledged £4 billion towards the building of such homes in his recent Autumn statement.
However, research put forward by Savills has found that even with this scheme, home ownership will still remain a pipe dream for many who are not yet on the property ladder.
They compared the size of mortgage that would be necessary (i.e. 55% of the value of a median priced property), and then compared that figure with the income requirements set by the majority of mortgage lenders to get loans of the appropriate size.
According to their findings, a single adult work full time and earning the median wage in London will, even if they use the scheme, still not be able to afford to purchase a property of median value in London. This is because they would still not be able to borrow enough money from mortgage lenders to make up the value, due to income requirements.
And households with two earners would not be able to afford to buy a home in over a third of London 's 32 boroughs.
In Richmond-Upon-Thames, one of London 's more expensive boroughs, for example, the median house price is around£560,000, making the 55% loan necessarily worth £308,000. Based on a typical requirement of loan to income ratio of 3.85:1, that would mean that in order to be able to get such a loan, one would need to be earning £80,000 a year ñ more than twice the median income in the area of £39,563. And this is all before stamp duty which, for the kind of property in question, would be around £18,000.Help
Savills director for residential research, Lucian Cook, said that these latest proposals from Osborne would be helpful for some potential first time buyers ñ notably those who are currently just on the wrong side of the fence of affordability ñ but that for the majority, "there remains a deposit barrier, even though it is vastly reduced because of the equity loan."
"It doesn 't open the market" he said, "because you still need to find substantial capital for the deposit and stamp duty to make a go of it."