You can buy a shiny new build-home in London with a deposit of less than lb20,000 using London Help to Buy. But is it really nearly as good a deal as it seems?
Under the government’s scheme, first-time buyers and residential movers working in london can get an equity loan as high as 40% from the property price, in theory making expensive new-build properties more affordable.
Here, we take a look at how much you’ll absolutely need to earn to obtain your on the job a home, and explain a few of the associated costs based in london Assistance to Buy.
Nearly 7,000 buyers used London Help to Buy
Help to Buy equity loans, first launched in 2013, gave buyers a government loan towards the purchase of a new-build home.
While Help to Buy has been available in London since the beginning, since February 2022 the federal government has allowed buyers in the capital to assert a loan as high as 40% of a property’s value. That’s double the amount 20% on offer elsewhere in England.
Loans are available on new-build properties priced as much as lb600,000.
According to government statistics, between February 2022 and the end of 2022, 6,867 homes in London have been bought using the scheme, with the vast majority (6,547) likely to first-time buyers.
Size of equity loan | Number of purchases |
Less than 20% | 140 |
20% | 1,181 |
20%-40% | 791 |
40% | 4,755 |
New London Assistance to Buy developments
The median purchase price of the home working in london for first-time buyers happens to be lb392,500, while other buyers pay a median cost of lb468,120, according to stats from MHCLG.
For buyers who bought an equity loan of more than 20%, the mean cost of homes is lb450,933, the same stats show.
These eye-watering figures above assistance to explain why the federal government has intervened in the London market by providing larger equity loans.
Housebuilders are buying in, too, with a selection of new developments offering London Assistance to Buy arising around the capital.
For example, the Essex Brewery development in Walthamstow offers one-bedroom flats from lb389,995.
In theory, what this means is these properties are available with a deposit of less than lb20,000.
Elsewhere, Berkeley has launched new homes in the Royal Arsenal Riverside rise in Woolwich, with prices starting at lb485,000 under London Help to Buy.
How much should i earn to make use of London Help to Buy?
This is the most pressing question asked by first-time buyers who would need to utilise the entire 40% equity loan.
Using the mean purchase price of lb450,933, buyers taking advantage of equity loans using London Help to Buy would need around a minimum deposit (5%) or just over lb22,500.
On surface of this, assuming you obtain the entire 40% equity loan, you’d require a mortgage for 55% from the cost, or around lb248,000.
As a general rule, you can only borrow up to 4 times your annual income, meaning buyers will have to earn around lb62,000 annually.
While this figure might be affordable for many couples, it’s considerably greater than the earnings from the most of young adults in London.
Equity loans and remortgaging
Help to Buy can help you onto the housing ladder, however, you have to consider what happens next.
First-time buyers commonly secure two or five-year fixed-rate mortgages, then switch deals after the word to avoid being managed to move on for their lender’s standard variable rate, which frequently costs considerably more.
Unfortunately, however, some lenders will only allow homeowners to remortgage if they pay off their equity loan in full when you are performing so.
To do this in London, your property have to have increased in value by up to 40%, which over two or 5 years can be quite unlikely. This means some homeowners could end up trapped on higher rate deals.
And if you're lucky enough to get have significant capital growth in your property, you’ll be giving 40% from it away when selling the home, because the equity loan is really a number of value, not really a set amount you borrowed. This might make it hard to progress up the ladder.
It remains to be seen whether more lenders offer Assistance to Buy mortgage and remortgage products if it is announced the scheme will run beyond its anticipated closing date of 2022.
Stamp duty and service charges
You’ll have to pay stamp duty around the full cost of the house, such as the share of equity that the government will own. On a property priced lb400,000, that’s an extra lb5,000 for a first-time buyer. Use our stamp duty calculator to find out just how much you’ll pay.
If you’re buying a flat, it’s apt to be a leasehold property. This means you’ll need to pay ground rent (a tax around the land) towards the freeholder. This can cost up to a few hundred pounds a year, though watch out for any punitive escalating clauses.
You’ll also have to pay a service charge for that repair off common areas. Find out how much this will cost before you decide to begin, as it can certainly vary significantly from development to development.
Ground rent and service charge reforms are being considered by the government following a exposure of the leasehold scandal – and it is likely that houses being sold as leasehold is going to be banned.
London Help to Buy alternatives
I‘ve saved a first deposit but am unsure about the Assistance to Buy scheme: Consider buying an existing property. They have a tendency to be less expensive than new-build homes, with 95% mortgages increasingly affordable, you could discover a good deal.
I want to get to the ladder working in london but lack the money to do so: Looking further afield might be your best bet, but when you have your heart focused on a London property, you could consider a shared ownership scheme. This can allow you to purchase a part of a property (from 25%) and pay rent on the rest. Shared ownership can be prohibitively expensive for many buyers, so do your research in advance.
I’m just starting to save: If you’re saving to buy your first home, you can aquire a boost of 25% on your savings by opening an aid to purchase Isa or lifetime Isa. Take a look at our full guides for more information.