Not enough deposit to own a London property? then consider the Help to Buy scheme.
If there’s one thing that’s widely known about London, it’s that buying a home there isn’t cheap. The average price of a property in London currently sits at around half a million pounds, which means that if you want to purchase a property in the capital, you’re going to have to find a deposit in the region of £75k to £100k. You’ll not need telling that this is no inconsiderable sum, so it’s not surprising that so many first time buyers are unable to buy a home in London.
The good news is that despite what might seem like insurmountable odds, there is a way to get on the property ladder in London and it comes in the form of the equity loan or Help to Buy scheme. It’s something that’s been in place since 2013 and it has enabled thousands of people to enjoy home ownership in London when it would otherwise have been possible.
More Manageable Cost
When the financial crash happened back in 2009, the UK went from being a place you could easily get access to a 95% loan to value mortgages, to somewhere that nothing less than 15-20% was the norm in terms of deposit contribution. That remains the case today, that is, however, with one notable exception – the Help to Buy scheme – which allows for just 5% to be put down by the applicant.
This is made possible because of the fact that under the Help to Buy scheme, the government will add a further 40% equity to that figure in the form of an interest-free loan, with the remaining 55% being made up by the mortgage lender. In this scenario, you’re looking at a much more manageable £25k for your deposit.
The Loan Terms
As we alluded to earlier, the equity loan provided by the government as part of the Help to Buy scheme is interest-free, but only for the first 5 years. There are also some parameters to abide by in the terms and conditions which need to be part of your calculations when determining your affordability.
These terms include:
- The Help to Buy scheme is only available on newly built homes
- The maximum value of the property you can purchase is £600k
- If paying back early, the minimum repayable amount is 10% of the total owed
- After 5 years, the loan moves from 0% to 1.75% for a year and RPI (Retail Price Index) +1
What also needs to be taken into account is the fact that should the value of your property go up, the amount repayable goes up by the same amount. Conversely, if the value goes down, your repayable amount goes down in line with it, so that if you were to sell, there wouldn’t be a shortfall on your equity loan.
Do You Qualify?
In order to be eligible for a Help to Buy mortgage in London, you’ll need to meet certain qualifying criteria. Firstly, this must be your first home, as the scheme is only open to first-time buyers and you need to have a good enough credit score to be accepted by a mortgage lender. You also need to be a UK resident and at least 18 years of age, as well as having the means to cover the 5% deposit and the provable ability to meet the monthly payments for the mortgage you’re applying for.
It’s also important to mention that the property must be used as your main residence and absolutely not purchased on a buy-to-let basis. In addition to this, you cannot be already taking advantage of any other government-backed incentives like New Buy, but you shouldn’t be anyway if you’re a first-time buyer.
If you meet all of these criteria, there’s a very good chance that you’ll have success. Of course, there’s more to it, but these are the main obstacles that would prevent you from participating in Help to Buy in London.
Help to Buy London is a hugely useful government incentive that should be enjoyed whilst it’s still available. There’s no immediate danger of it disappearing, with the scheme confirmed to be in place until at least 2023, but nothing is forever and you wouldn’t want to miss out. London is a tough place to get on the housing market, particularly for first-time buyers, so utilising the scheme while it’s still around would seem like a chance too good to miss.
History teaches us that whilst there are fluctuations in UK house prices, the trend always seems to be an upwards-facing one and nowhere is this more pronounced than in London. So, if you can get your foot on the ladder there, you stand to enjoy considerable capital growth at the same time as being spared the hassle, increased cost, instability and restrictions that come along with renting from someone else.
Consider taking advantage of the Help to Buy scheme and you can turn your London home-ownership pipe-dreams into reality.