From February the new London Help to Buy scheme will offer homebuyers loans up to 40% of the property value to purchase new-build homes.

The London Help to Buy scheme was extended in the Autumn Statement with loans of up to 40% or £240,000 on properties valued up to £600,000.

Help to Buy was launched in April 2013 across the UK with equity loans of 20% and George Osborne has extended this to 40% for buyers in London due to the significant rise in house prices.

According to the latest data from the Halifax, in London the average first time buyer buys a home for £367,990 and has a deposit of £91,409 or about 25% of the property value.

How does London Help to Buy work

As property prices in London reach record levels and lenders must apply tough affordability checks for borrowers including first time buyers, home movers and remortgage buyers, it is harder to raise the deposit on a new home.

London Help to Buy allows homebuyers the opportunity to buy a new-build home with a 5% deposit. There is a five-year interest free loan of up to 40% of the property value from the government’s Homes and Communities Agency.

At the end of the five-year loan you will be charged interest starting at 1.75% and this will rise each year in line with inflation plus 1%.

The balance of 55% is a mortgage with borrowing limited to 4.5 times your earnings, available from participating lender including Leeds, Lloyds and Nationwide initially.

Lenders must now take into account your income and commitments such as child care costs and outstanding loans. Although interest rates will be low the lenders must check that the mortgage is affordable even if interest rates rise as high as 4% in the future.

The scheme is open to anyone that needs a home including home movers as well as first time buyers and there are no age limits.

The scheme promotes new home ownership for people that are renting and is not available to switching remortgage buyers or buy-to-let investors.

Help with the deposit for a new home can come from family members as the equity release buyer can access cash using a lifetime mortgage and give to a child or grandchild.

Funding for Help to Buy

The existing Help to Buy from the government has been very successful and are offered as the equity loan scheme and mortgage guarantee scheme.

Funding for the London scheme comes from the £8.6 billion provisions designed to extend the equity loan scheme from the intended end date of April 2016 to March 2021.

To date 130,000 have used the versions of Help to Buy to take their first step on the property ladder and has been more popular with homebuyers outside of London accounting for 94% of transactions.

In London by the end of September 3,548 homebuyers had accessed Help to Buy equity loan scheme out of a total of 62,569. The government has said another 10,000 could benefit with the new London Help to Buy scheme.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

Learn more by using the property value tracker chart, mortgage cost calculator and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property for home improvements, holidays or even pay for care at home.

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