What are the alternatives to Help to Buy in London?

15 Jun

What are the alternatives to Help to Buy in London?

Now Help to Buy London is closed, there are still other forms of help available when it comes to getting a foothold on the property ladder in the capital.

Shared ownership

Shared Ownership is also known as part-buy part-rent. Buyers pay a low deposit, and purchase only a share of a property with a mortgage. The remainder of the property is owned by a housing association or a local authority, with the buyer paying rent on the share they don’t own.

Over time, the buyer has the option to increase their ownership stake in the property. Once they own 100% of the property, they won’t have to pay any rent.

The government oversees most shared ownership schemes. But there is also a private shared ownership option through Heylo which works in partnership with homebuilders.

Mortgage Guarantee Scheme

It can be difficult to buy a property if you only have a small deposit. This is a particular issue in London where saving even a 5% of a property value can be difficult, as house prices are so high.

Mortgage lenders generally don’t like lending to borrowers with small deposits as there is a higher risk the debt won’t be repaid in the event the property is repossessed. Those lenders that do offer loans at 95% loan-to-value (LTV) charge higher interest rates than average.

The government’s Mortgage Guarantee Scheme was introduced to increase the supply of 95% LTV mortgages and make them cheaper.

Under the scheme, the government guarantees part of the mortgage, making it less of a risk for the lender. The guarantee compensates mortgage lenders for a portion of net losses suffered in the event that the property is repossessed.

To use the Mortgage Guarantee Scheme, you’d need a 5% deposit and a mortgage with a participating lender. The property you buy would have to be £600,000 or less.

Lenders participating in this scheme include Barclays, Halifax, Lloyds, Natwest and Royal Bank of Scotland.

Note that the Mortgage Guarantee Scheme, originally scheduled to end on 31 December 2022, has been extended until the end of 2023.

95% mortgages

There are several other lenders that offer 95% LTV mortgages separately from the Mortgage Guarantee Scheme. Practically, for borrowers, these mortgage deals work in the same way as 95% mortgages offered with government backing.

If you can save a 5% deposit, there are about 38 lenders (as of November 2022) which offer 95% mortgages assuming you meet their lending criteria, according to Moneyfacts.

First Homes

Launched in June 2021, First Homes is an initiative where first-time buyers, key workers, and local people can purchase a new-build home at a discount of between 30% and 50% on its market value.

Each home being sold through the scheme is valued by an independent surveyor, and these homes can’t cost more than £250,000 – or £420,000 in London – after the discount has been applied. When the property is later sold, the discount will be passed onto the next buyer.

However, only a small number of developments are available on the First Homes scheme.

Right to Buy

Right to Buy allows council tenants to buy their council home at a discount. The discount can be up to £87,200 or £116,200 if you live in London.

You’ll need to be a council tenant to be eligible for Right To Buy; the property will need to be your main or only home, and you’ll need to have lived there at least three years.

Saving with a Lifetime ISA

Anyone planning to buy a home, in London or elsewhere in the UK, should save in a Lifetime ISA.

You can open a Lifetime ISA if you’re aged between 18 and 39. You can save up to £4,000 in the account each year until your 50th birthday.

The government will pay an annual bonus of 25% (capped at £1,000 a year) on any contributions you make. If you saved £4,000 a year each year between the ages of 18 and 50, the total government contribution will be £32,000.

Funds can be withdrawn at any time in order to buy a first home worth up to £450,000, and from age 60 for any purpose.