Plans to extend the existing help-buy equity loan scheme to the capital will officially come into play on the 1st of February, it has been revealed.
The help-buy equity loan scheme, as it stands, involves the government providing a loan to a prospective homebuyer worth up to 20% of the property ‘s value, allowing the buyer to pay a significantly smaller deposit than they would otherwise have to in order to get a mortgage with a lower LTV ratio.
A buyer needs to put up a deposit of 5%, but can, in doing so, get a mortgage worth 75% of the property ‘s value, rather than having to either find 25% to start with, or pass very strict affordability checks in order to get a mortgage worth 95%.
The scheme, which has been in operation around the UK since 2013, will be extended to London, and the value of the loan increased to 40% of the property value, up to a maximum of £240,000. The loan is interest free for the first five years, after which interest starts being charged at 1.75%, increasing each year, following the Retail Price Index plus 1%.
The loan must be repaid on the sale of the property or before if the mortgage has already been paid off.
According to Halifax, the average price for a first-time buyer ‘s home is just under £400,000, and the average deposit paid was just over £91,000. The help-buy scheme, could allow a prospective buyer to spend the same amount of money, but to pay a deposit of just £18,000, giving them a saving of some £72,000.
Help-buy loans are available to those wishing to purchase a home worth up to £600,000, and those who get the loan must put up a deposit worth at least 5% of the property ‘s value in order to qualify. As with conventional help-buy, the London help-buy scheme is available to both first time buyers and movers, but not to those looking to get buy-let mortgages.
Ray Boulger, a mortgage broker at John Charcol, pointed out that the help-buy equity loan scheme will not just help those who cannot afford a large enough deposit to get homes in the first place, but also gives though who can afford a large enough deposit a dramatic boost to their spending power, without increasing their mortgage payments.
He did, though, express some concern about difficulties in moving further up the property ladder that may be faced by those who got on the first rung using help-buy and struggle to clear the balance of the loan before interest kicks in.
He said: “people who use the scheme will stay in the property a lot longer ñ this is likely to happen with the existing scheme too. A lot of people will find that their ability to move is limited unless they want to downsize, but if they are buying a bigger property at the outset that shouldn ‘t be a problem.”
Brandon Lewis, the housing minister, spoke of past and future success of the help-buy scheme, saying: “we ‘re determined to help people enjoy the security that comes with owning a home and have already helped over 130,000 people into home ownership with help to buy.”
Campbell Robb, CEO of the charity Shelter, was slightly more reserved in his estimation of help-buy ‘s success. He argued that “what we need to tackle the housing crisis in London isn ‘t more gimmicky schemes that are only available to higher earners, but investment in genuinely affordable homes.”