The Government is set to launch a new Help to Buy advance for London, giving more first-time buyers in the capital the chance at owning a property.
The scheme is set to go live on the 1st February, offering loans up to £240,000 towards purchasing a new-build property in the capital.
Extending the equity loan scheme
First-time buyers in the UK have been able to take out an ‘equity loan’ through Help to Buy since 2013, but this new scheme doubles the amount you can borrow if you’re buying a property in London.
The Help to Buy Equity Loan allows first-time buyers to borrow up to 20% of the cost of a new-build home while only needing a 5% deposit. That means that with just the minimum 5% deposit, first-time buyers could benefit from having just a 75% mortgage. The equity loans are interest free for the first five years, after which a fee of 1.75% is charged. This fee may rise each year in accordance with the Retail Price Index (RPI), plus 1%.
But, the big changes in the scheme for London mean that this loan from the Government is doubling in size to up to 40% of the property’s value, with a starting interest rate of 1.75%.
This means that a first-time buyer could, for example, put down a deposit of 5% and take a Government loan of 40% out – meaning they will only need a 55% mortgage.
In order to qualify, you’ll have to be a first-time buyer looking to purchase a new-build property in Greater London, and it’s only for homes worth up to £600,000.
As is the case with the existing Help to Buy scheme, you’ll have to have saved up a deposit of at least 5% of the property’s value before applying. Plus, you’ll have to be able to pass the requirements for a standard mortgage – such as the typical affordability checks.
During these affordability checks, lenders will have to make sure first-time buyers will be able to afford the loan repayments, up to an interest rate rise of 4%. So, for example, if the first-time buyer was looking to borrow the maximum loan of £240,000, the lender would make sure they would be able to repay £800 each month – alongside their usual outgoings and mortgage repayments.
As is the case with a regular (non Help to Buy) mortgage, the affordability checks are quite thorough. But, that’s not to say there aren’t ways you can improve your chances of being accepted. Head here to find out how to maximise your chances of getting a mortgage
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