Will London’s Help to Buy scheme be successful?

February 9, 2016 by Brendan O'Neill

Rates

As the new Help to Buy scheme for people living in London recently launched, could the initiative be the best way for you to buy your first home in the Capital? The first interest rates have been introduced for the London scheme, with the lowest rate set at 1.55%. However, a report produced by Telegraph Money considers whether the scheme really is the best method of buying a home.

The scheme was originally launched for first time buyers outside London, offering an interest free loan of up to 20% of the property price for up to five years. If the loan isn’t repaid at this time, then interest rates are applied, increasing every year until repaid. The London scheme will lend up to 40% of the deposit but with the same criteria. Buyers must have a minimum 5% deposit in both cases.

The mortgage rates compare favourably with the interest rates charged for a high loan to value mortgage, but a buyer who saves a deposit of 15% or 20% will often obtain a better mortgage rate. However, the rate is paid on the whole amount, whereas the loan on the Help to Buy scheme is interest free for five years. After the five years, as the interest charged on the amount could easily reach 5%, it would be cheaper to save up the initial deposit.

Calculating the most cost effective option of buying a house is complex, which is why it is advisable to seek the advice of a CeMAP mortgage adviser.