The scheme offers Londoners an equity loan of up to 40% of the purchase price with the maximum property value capped at £600,000. Borrowers need to chip in 5% of their own money allowing them to take out a mortgage of 55% loan-to-value.
This week we’ve asked our panel of experts to tell us what the initial market reaction to the scheme has been and if they think the government has done enough to help Londoners achieve their dream of home ownership.
John Phillips, group operations director of Spicer Haart and Just Mortgages, considers the affordability issues which Help to Buy borrowers will be faced with after the expiry of the interest-free period of the equity loan.
Martin Stewart, director of brokerage London Money, is disappointed at the way the scheme, which he believes offers new-build buyers an excellent opportunity, has been promoted.
Russell Hall, head of new homes at SPF Private Clients, has seen a lot of interest in the London-focused scheme and believes affordability concerns after five years will be negated by lenders’ initial stress-testing.
Help to Buy London will certainly open doors for some potential buyers in the capital.
However, with some reporting that average house prices in London are now over £600,000, we predict this is still likely to benefit higher earners and therefore is unlikely to benefit many first-time buyers, certainly not in the city centre.
We have seen an increase in the Help to Buy enquiries, but then we noticed an increase in the number of people trying to buy across the board, therefore the increase falls in line with the general upturn in demand.
Lenders do have competitive products, but it’s the supply of housing at affordable prices which is the issue. Affordability both now and in the future is also at the forefront of lenders’ minds and this is particularly the case with the Help to Buy scheme because of the rise in costs in year six. Borrowers will need to ensure that they cannot only afford the rates now but also after the five-year initial interest-free period has ended.
Help to Buy borrowers will potentially be hit by a double whammy after five years. They will have to start paying interest on their loan for the first time, but as rates are currently at a historic low, it could well mean that those rates are rather higher than they are now.
The inevitable rise in interest rates is something that every borrower needs to think ahead about, to ensure that their mortgage is affordable not just now but also when rates increase. Taking the right advice from a qualified adviser is vital.
My personal take on this is that as a housing initiative it is excellent and yet, so far, it is being disappointingly marketed. Instead of being heralded as a great opportunity and shouted from the rooftop of a new-build block of flats it appears to have shuffled along, embarrassed almost, like someone doing the walk of shame.
I see Help to Buy London as a great opportunity and if I were a first-time buyer I’d be all over this. Where else can you purchase a £600,000 property with a £30,000 deposit and yet pay a 55% loan-to-value mortgage. Yes, I appreciate there are caveats and conditions but still this is home-ownership we are talking about here. There are 17 well respected lenders buying into the scheme, they wouldn’t be doing that if they didn’t see the opportunity.
I am fairly vocal on buy-to-let landlords but I am also the first to fully acknowledge the importance of a private rental market – but it cannot be at the overall expense of a healthy housing market. At last the seesaw may now begin to balance itself out. No longer will there be 30 landlords on one end of it and a lowly first-time buyer at the other end.
We fully intend to market this initiative. We will launch a new website in the next two weeks specifically for the Help to Buy London market. The market may not be embracing it but we fully intend to.
This week has seen the much anticipated launch of London Help to Buy. With property prices in the capital continuing to rise, this scheme is being viewed by some as the saviour of the London first-time buyer. Demand is expected to be high and we have already had a deluge of provisional enquiries from applicants wanting to know whether they qualify and how the scheme will work.
The 40% government equity loan has raised eyebrows and will help purchasers meet the tough affordability tests. That said, the fear of not being able to afford the overall loan when the equity loan needs to be repaid is nullified by the lender accounting for this in the affordability calculations. There has been a marked increase in qualified purchasers under the scheme giving the potential to increase lending volumes across London.
With many new-build schemes due to be launched this year, this can only be positive for developers, agents, brokers and lenders alike. The only initial reservation about the scheme is Help to Buy London cannot be offered on new-build schemes over nine months from completion, so this may restrict a purchaser’s choice.
The reaction from the lending market has been positive with 10 lenders already accepting applications; these being the usual suspects including Halifax, Nationwide and NatWest. It appears that Barclays has pulled the first punch with a competitive two-year fixed rate at 1.55% yet all the rates so far appear attractive.