Buying a House > Help to Buy London

 Welcome to London. Red buses, red telephone boxes, £5 pints and a city ‘that never sleeps’… Apart from on Monday – Thursday, when the tube doesn’t run on a 24-hour schedule.

The UK’s capital is famous for its ‘go big or go home’ attitude. Buildings? Massive. Population? Huge. The previously mentioned price of a pint? Mind-bogglingly high. But, one place where London undoubtedly triumphs over the UK when it comes to excess, is house prices.

The big smoke is expensive. For young Londoners, the idea of ever purchasing their own home is laughable. Unless you fancy living in a ‘studio’ at the far end of the Overground in zone 6 or 7, London is not a place that young people buy a property. In fact, according to estimates by the financial company PwC, London will become a city of renters by 2025, when only 40 percent of them will own their home. 

 

How are high house prices affecting London?

Unsurprisingly, this situation has led to people fleeing the capital in record numbers. Figures published by the Office for National Statistics in June revealed that 340,498 people left London in the 12 months before June 2018. Over the same period, 237,270 people moved to the capital from other parts of the UK, meaning that London suffered a net loss of 103,228 people.

This mass exodus is the largest that the city has dealt with since ONS began collecting data in 2012 and, even more shockingly, it shows London is now the only region in the UK where more people are leaving than arriving.

The capital is full to the brim with talented people who flock to the city for its high salaries and multicultural atmosphere. However, this talent is frequently finding London to be an unsustainable city to live in, so they are migrating to other parts of the UK for a better lifestyle. So what’s being done to keep them?

Well, in truth, not a lot. London rents continue to rise and, despite Mayor Sadiq Khan saying that he is in favour of a rent-cap, tenants are still being exploited and priced-out of the city.

But, for all the doom and gloom surrounding London’s house prices, there is one positive.

 

Help to Buy London

‘Buy a property’ and ‘London’ are two words that rarely put together. Like the ideas of texting your ex when your drunk, or drinking orange juice after brushing your teeth, ‘buying’ and ‘London’ do not mix well. However, is there a change afoot?

Since its launch on 1 April 2013, the London Help to Buy scheme has been, well… helping Londoners buy a property. So how does it work?

The London Help to Buy scheme is an equity loan that is provided by the Government to help you purchase your first property. They lend you up to 40% of the cost of your property, meaning that you will require at least a 5% deposit and a 55% mortgage to make up the rest of the cost.

The loan is for a maximum of 25 years or until the property is sold – whichever comes first. You will not be charged interest for the first five years of the loan, however, a £1 a month fee will be charged from the date of purchase. From year six, an interest rate of 1.75% is payable on the equity loan, which rises annually by RPI (Retail Price Index) inflation plus 1%.

If these percentages are boggling your mind, here’s an example of how the loan will work. Say you bought a property in London for £500,000 (roughly the average price of a place in London), you would be required to have a deposit of £25,000 (5%) and a mortgage of £300,000 (55%) for the government to provide you with an equity loan of £275,000 (40%). If you then sold the property for £510,000, you would receive £330,000 for your deposit and mortgage, with the government taking home £280,000. Make sense?

How do I qualify for a London Help to Buy Loan?

Now you know what the scheme is, you probably want to know if you’re eligible, right?

There is a certain criterion that you need to match to qualify for an equity loan.

The loans are available to both first-time buyers and homeowners who are looking to buy in the capital. However, while they are available to both, you cannot receive the loan if your deposit is lower than 5% of the purchase price.

All help to buy applicants will undergo a thorough financial assessment during the process of receiving the loan, with applicants having to declare their income and any debt that they may be struggling with.

All properties purchased through the Help to Buy must be new builds with a maximum price of £600,000 and be advertised as a Help to Buy property by a registered Help to Buy developer.

You cannot receive Help to Buy assistance on any property that isn’t Help to Buy registered.

 

Help to Buy Schemes outside of London

While these percentages and terms are London specific, there is Help to Buy schemes available across England as well as in Wales and Scotland. The terms for each national scheme will vary, so keep them in mind when applying for a Help to Buy property.

For the rest of England, the loan percentage currently stands at 20%, with London’s 40% being reflective of the astronomical house prices in the capital. Despite the equity loan being lower in other parts of the country, the scheme still requires that potential buyers have a deposit of just 5% of the property value. However, be warned, that this does mean that your mortgage will be higher, with it being potentially 75% of the property value.

To apply for the London Help to Buy Scheme, you will first need to find a property with a registered developer.

You can find available Help to Buy properties online by visiting Homes for Londoners – The Mayor of London’s official affordable homes portal.

Once you’ve found the property of your dreams, you can reserve it and apply online using the downloadable reservation forms, declaration page and a direct debit form. Alternatively, you can download and complete the Property Information Form in full and email your completed application to Help to Buy London along with your property reservation. Help to Buy will then check your application, financial capabilities and any other required information before either issuing you with an Authority to Proceed or declining your application.

While we’ve outlined all you need to know about Help to Buy in London, please make sure you download the Buyer’s Guide which is available on their website. The guide will give you a full rundown of the application process and all the information that you will need and be required to hand over.

Help to Buy vs. Shared Ownership Schemes

Help to Buy isn’t the only scheme that aims to help Londoners get on the property ladder. Shared ownership schemes are also becoming increasingly popular in the capital and may be worth exploring before you commit to a Help to Buy scheme.

Also known as a ‘part buy, part rent’ scheme, shared ownership allows you to buy a share of a property and pay rent on the rest. The scheme is designed to allow people to pay small deposits on a property and get on the property ladder.  Under a shared ownership scheme, you buy a stake of between 25% and 75% of the property from a housing association and pay rent of up to 3% on the remaining share. Like the Help to Buy scheme, shared ownership schemes typically require you to put down a minimum 5% deposit, but that figure is only on your share rather than the total property price. The rest of your share will be paid for through a mortgage.

While the shared ownership scheme requires a minimal initial outlay, you will be required to pay rent on the rest of the property and your mortgage repayments, meaning the monthly costs can be steep.

 

Both Help to Buy London and shared ownership schemes aren’t the solution to London’s housing crisis, but they are a step in the right direction. If the government is serious about helping Londoners get a foot on the property ladder, more schemes like Help to Buy need to be launched and a possible rent cap to help Londoners save some money must be explored.

If you’re thinking about buying in the capital, be sure to explore the scheme to find out if it’s right for you. While the Help to Buy scheme makes it easier to purchase your first home and only requires a 5% deposit, you will be borrowing a lot of money (mortgage and equity loan).  Please make sure that you are aware of how much you will owe, how long you will have to pay it back, and whether you will have the financial capability to do so before you apply for a Help to Buy Scheme.  As always, if you’re ever unsure, seek the help of a professional and do not be afraid to ask for clarity regarding any issues that you are unsure of.