A Quick Guide To Help To Buy

windowsLast year, as Londoners watched property prices spiral out of their reach, the government stepped in with Help to Buy (HTB). The scheme was intended to help buyers by providing a loan of up to 20% of the value of a new build property, with the buyers stumping up a 5% deposit and a 75% mortgage.

So, if we imagine an parallel universe where a London property only costs £200,000, it works out like this:

  • £40,000 government loan of up to 20% of the property’s value
  • £10,000 as a 5% deposit from the buyer
  • £150,0000 mortgage to cover the other 75%

It’s not quite free money though. The government loan is interest-free for the first five years but after that the buyer pays an admin fee of 1.75% of the loan. The admin fee goes up every year based on the Retail Price Index (RPI) +1%. There’s also the interest on the mortgage to pay and that definitely isn’t free for the first five years. The scheme does not allow interest-only, offset or buy-to-let mortgages, so landlords can’t use it to get a cheaper foothold on a rental empire. Second home owners are also excluded.

The scheme hasn’t been without its detractors — one of the main criticisms levelled against HTB is that it would create a housing bubble thanks to supply not keeping pace with demand. It’s been accused of not addressing the problem of affordability of housing and merely subsidising it with taxpayers’ money. The lack of an upper limit on the salaries of potential buyers and the £600,000 limit has led to the claim that HTB isn’t making housing affordable for the people who really need it. Though recently, one of the scheme’s biggest lenders (Lloyds) capped the amount it’s willing to lend at £150,000 from the original £500,000 limit.

Figures released in July said that more than more than 27,000 people across the country had completed house purchases using HTB between April 2013 and June 2014, with 1,750 of those in London. There were no HTB purchases at all in Camden, City of London, Kensington and Chelsea, Haringey, Westminster and Richmond upon Thames. Havering had the highest number of HTB purchases (207) compared to one in Hammersmith and Fulham.

Why so few? Well, London has its own raft of property issues, which we’ve spent the last few months exploring. Early reports on HTB suggested it could drive down rents in the capital, but one of the city’s biggest problems is lack of housing supply. No amount of government loans is going to help if there’s nothing but a £2m one-bed flat for sale in your area. According to Mayor Boris Johnson’s Infrastructure Plan 2050 released last week, 50,000 new homes per year are needed to meet current demand. The Homes for London board has said that we’re just not building enough and there’s even a shortage of bricks. Then there’s the combination of soaring house prices and plummeting wages, exacerbated by — yep, you guessed it — increasing rents.

So Help to Buy hasn’t helped quite as many Londoners to buy as presumably was initially intended. The Bank of England is set to review the scheme in September and decide whether it should be changed or discontinued completely. Would the government risk pulling it ahead of a general election? We’ll leave that one up to you to decide.

Photo by Paul Shears in the Londonist Flickr pool.

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  • Guest

    The current plight of Londoners is parlous and all are agreed that a drastic housebuilding programme must be part of the solution. In the meanwhile, companies aligned with the sharing economy as an ideal might provide some help too. There are companies with schemes encouraging sharing mortgages for example.
    Up to four people can effectively share a mortgage (although only two names can appear on the title deeds) if they have a Deed of Trust in place which sets down exactly who owns what and how contributions to mortgage repayments are recognised as conferring beneficial ownership in a property.
    Sharing in this way means that the pooling of resources makes more houses affordable and the costs are divided as well..

  • Marcus Anderson

    The current plight of Londoners is parlous and all are agreed that a drastic housebuilding programme must be part of the solution. In the meanwhile, companies aligned with the sharing economy as an ideal might provide some help too. There are companies with schemes encouraging sharing mortgages for example.
    Up to four people can effectively share a mortgage (although only two names can appear on the title deeds) if they have a Deed of Trust in place which sets down exactly who owns what and how contributions to mortgage repayments are recognised as conferring beneficial ownership in a property.
    Sharing in this way means that the pooling of resources makes more houses affordable and the costs are divided as well.

    One company that currently does this is Share a Mortgage, and they have a particular offering aimed at Londoners.