The new, expanded, Help To Buy scheme in London isn’t due to become available until 1st February but lenders are already showing their enthusiasm by launching products ahead of time.
It’s similar to the existing Help To Buy Equity Loan, though recognising the particular difficulties faced by buyers in the capital, the London scheme will give up to 40% of the purchase price as an equity loan. The buyer still needs to put down 5% deposit so then only needs a conventional mortgage of 55%.
Leeds BS and Teachers BS were quick off the mark, making announcements on Wednesday. They were closely followed by Nationwide’s new range launched a day later. Expect more to come over the next few days, but at first glance the pricing looks competitive with all 3 lenders offering rates starting a little under 2%.
Of course there’s no such thing as a free lunch. Whilst a small(er) mortgage and commensurately lower interest rates look great, the 40% loan equally means sacrificing 40% of equity growth: for every £1,000 the property value increases, the homeowner only keeps £600, which could have quite an impact on their next purchase.
Nonetheless it’s a major initiative. According to the Halifax House Price Index the average first time buyer in London paid almost £340,000 in the last 3 months. Allowing for the 5% deposit, the new Help to Buy scheme cuts a potential 95% mortgage £323,000 to a much more affordable £187,000 loan - and probably halves the interest rate as well.
It’s bound to be very popular then, and the eagerness with which lenders are embracing it shows they see a big opportunity there as well.