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The new government help to buy scheme for Londoners was announced yesterday, but just what does it mean and are you eligible?
Currently, a Help to Buy scheme does exist in London, however George Osborne announced on Wednesday (November 15) there will be key changes with a dedicated system for the capital.
As the current system stands, if you’re able to pay at least 5% of the value of your home as a deposit, the government will lend you up to 20% of the rest of the value of the property, alongside your mortgage of up to 75%.
However, the new London Help to Buy Equity Loan entitles you to receive a loan from the government of up to 40% of your house price, as long as you can still place a deposit of 5%.
Equity Loan will now reportedly be available until 2021 and in order to reflect the current property market in the capital, the upper limit increase to 40% for new buyers will come into effect from early 2016.
Can the Help to Buy scheme really help?
Shockingly, between April 2013 to June 2015, just three homes were bought by first time buyers in Hammersmith and Fulham using the Help to Buy Equity Loan scheme, and none in Kensington and Chelsea or Westminster.
The scheme has proved more popular in other areas of west London, with 459 sales to first time buyers over the two years.
However, 787 homes were sold in Wiltshire over the same period, 765 in Leeds and 657 in Central Bedfordshire.
The new scheme means buyers would need to save a 5% deposit, take out a loan from the Government for 40% and find a mortgage to cover the remaining 55%.
This means that for a £400,000 home for example, a buyer would need a deposit of £20,000.
The buyer would then borrow £160,000 from the Government and get a mortgage for £220,000.
This is instead of the current loan system, where the buyer would get a £80,000 loan, with a £300,000 mortgage.
In theory, this should mean house pricing should become affordable to people earning slightly lower wages.
The loan is interest free for five years, before a fee of 1.75% a year will be charged, with the fee rising by RPI plus 1% each year.
The loan must be paid back after 25 years or when the house is sold, although buyers can opt to pay it back at a minimum of 10% of the loan at any point.
Still confused? Let us know in the comments section below and we will try our best to help you out