London Help To Buy – how does it work?

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4 April 2016 | Money Matters

It’s one of the biggest recent announcements in property in the capital – London Help to Buy was introduced in February, and now buyers can borrow 40% of the cost of their new home.

It’s a move which is aimed at helping aspiring buyers across London take a step onto the property ladder.

But how does the scheme work? Here’s our step-by-step guide...

5% deposit

Traditionally, a major barrier to home ownership in London has been the need to save up a large deposit.

Buyers who use London Help to Buy – or the original Help to Buy scheme – only need a 5% deposit to buy a new home. A deposit cannot be any lower than 5% with Help to Buy, but it can be higher if the buyer wishes.

40% equity loan from the government

Outside of London, the government lends home-buyers using Help to Buy 20% of the value of their new home as an equity loan. In London, buyers will now be able to access double the amount of equity loan – 40%. The equity loan is interest-free for 5 years.

55% mortgage

With a 5% mortgage and a 40% government equity loan, buyers making use of London Help to Buy require a 55% mortgage. A number of lenders offer specific London Help to Buy mortgages – a full list can be found here.

Who is eligible?

A common misconception is that Help to Buy is just for first-time buyers. While it is extremely popular with those buying a first home, it is also available to home movers.

Buyers who wish to use London Help to Buy cannot part exchange their current property to use this tool, nor can they own another property.

Homes bought with the scheme cannot be sublet thereafter – the one exception is if the buyer is a current serving member of the armed forces seeking to sublet their home while away on duty.

The scheme can be used on the purchase of a home up to a maximum value of £600,000, and all applicants will complete a full financial assessment.

For more details, visit the Help To Buy website.