What You Need to Know About Help to Buy London

The government’s Help to Buy scheme which aims to help buyers get onto the property ladder is not being extended to London, and officially launched on February 1.

The scheme promises buyers a loan of up to 40% of the value of the property, with no interest for five years.

The only catch is that the property must be a new build, and cannot be worth more than £600,000.

The loan is paid back when the property is sold in instalments, or after 25 years.

So what’s the difference to the normal scheme?

The main difference is that with the normal Help to Buy loan you can only get a loan of up to 20% of the value of the property.

However due to the higher property prices in the capital, the loan has been upped to 40%.

In both cases the buyer has to provide a 5% deposit and pay the rest off through a mortgage from a commercial lender.

So for example if a property was worth £300,000, you’d be entitled to borrow up to £120,000 from the government, pay your own 5% (£15,000) deposit, and borrow the remaining £165,000 as a mortgage.

What about interest?

For the first five years you’ll just have to pay the normal mortgage payments. If the mortgage isn’t paid off after this period, you’ll start to be charged interest.

This will start out at a rate of 1.75%, rising 1% (plus inflation) every year following that.

You’ll need to prove to your lender that you’ll be able to afford these repayments including interest, on top of your other outgoings.

It’s worth bearing in mind that some lenders will want to see that you can afford an interest rate of as high as 4%.

How is it paid back?

The government loan will have to paid back when you eventually sell the property, and you will have to pay back the proportion of the loan you borrowed.

So using the example of a £300,000 property we mentioned earlier, if this property went on to sell for £350,000 and you borrowed 40%, you’d be liable to pay 40% of the selling price, which would come to £140,000.

This works the same way if the value of the property falls, so you may end up paying back less than you borrowed.

Of course you can pay back the loan earlier than that if you wish, although you have to pay back a minimum of 10% of the property’s value at a time. (This will also require you to pay for a valuation with each repayment)

Am I eligible?

There are technically no limits on who can benefit from the scheme, it doesn’t matter whether you’re a first time buyer or just moving house, and there are no age limits.

However just like with any mortgage you will have to prove to a lender that you can afford the repayments on both the mortgage and the government loan, so will need to have a steady income.

Also bear in mind that you cannot borrow more than 4.5 times your income.

The scheme is set to run until 2021, and you can find out more at the government’s Help to Buy.

And if you require any advice on the scheme or on any other aspects of mortgages feel free to get in touch with one of our advisors for some free expert advice.