The Greater London Help To Buy Equity Share Scheme
Posted on 25 November 2015 by
- Monthly costs for purchasers of a new build property using the new London Help To Buy scheme will be significantly less than rental costs of a comparable property, massively incentivising Londoners to find the 5% deposit and other costs.
- The London HTB scheme will also result in much lower monthly costs for a comparable property than using the Starter Home scheme, unless the HTB Equity Share scheme is made available to purchasers of Starter Homes Initiative properties.
- The 1st charge mortgage for purchasers will be below the 60% maximum LTV to qualify for most lender’s best rates and so borrowers in London will be able to access even cheaper rates than on the current HTB scheme.
- Comparison, based on a purchaser with a 5% deposit and a 25 year mortgage buying a new build property at £500,000, using the London HTB scheme, or buying a similar property with a 20% discount, i.e. at £400,000, using the Starter Homes Initiative:
- HTB: the 1st charge mortgage will be 55% of £500,000, i.e. £275,000. A HTB 5 year fixed rate at 2.34% (Nationwide’s current rate at 60% LTV) would be £1,212 p.m. After 5 years the mortgage balance would be £232,076 and so £42,924 (15.6%) would have been repaid.
- Starter Home Initiative: 95% of £400,000, i.e. £380,000. A 5 year fixed rate at 95% LTV (Halifax’s current rate) would be £2,153 p.m. After 5 years the mortgage balance would be £334,905 and so £45,095 (11.9%) of the mortgage would have been repaid.
- Over 5 years a buyer using the HTB Equity Share scheme would save £56,460 in monthly payments but a buyer using the Starter Homes Initiative would benefit by recouping the initial £100,000 discount.
- Conclusion: Even if this purchaser bought at the maximum £600,000 purchase price available with HTB the monthly payments on the resulting £330,000 1st charge mortgage would only increase to £1,455 p.m., still £698 p.m. or £41,880 over 5 years, less than with the Starter Home bought at £400,000. Many buyers who will not be able to obtain a mortgage of £380,000 will qualify for a mortgage of £275,000 and this, plus the much lower monthly payments, will result in the Starter Homes Initiative flopping in London unless the Government allows buyers to combine it with at least the original Help to Buy scheme.
The views expressed here are those of the author and do not necessarily represent or reflect the views of John Charcol Ltd
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and neither Charcol Limited nor Ray Boulger will accept liability for them.