New London homes in reach of first-time buyers

Monthly costs for buyers of a new-build property using the London Help To Buy scheme could drop to significantly less than rental costs of a comparable property.

Ray Boulger, of mortgage advisory firm John Charcol, believes the London Help To Buy Scheme – announced by Chancellor George Osborne in his Spending Review and Autumn Statement last month – will “massively incentivise” tenants in the capital to find the 5% deposit and other costs needed to purchase their first home.

The London-only Help To Buy Scheme will mean aspiring first-time buyers who want to purchase a new-build home can now get an interest-free loan of up to 40% of its value for five years.

Buyers will still have to raise a 5% deposit, with the remaining 55% of the new-build home’s cost being covered by a mortgage.

On top of this, the government is lifting the current restrictions on who can buy a home through shared ownership from April 2016 when anyone in London with a household income of less than £90,000 will be able to access the scheme.

If first-time buyers in the capital purchase a share of between 25% and 75% in a home, the rent on the rest of the property will not be more than 3% of the amount left.

On a property worth £227,000 where the buyer has bought a 40% share, for example, the rent will not be more than 3% of the remaining 60%. In this case £4,000 a year, or £340 a month.

Boulger at John Charcol points out that the London HTB scheme will result in much lower monthly costs for a comparable property than using the Starter Home scheme.

“Over five years, a buyer using the HTB Equity Share scheme would save £56,460 in monthly payments,” he says.

This could put pressure on landlords to reduce the rents they charge on property in London in a bid to encourage their tenants to remain in the property, letting agents warn.

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Property Wire