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Help to Buy London: a sticking plaster with a sting in the tail

PUBLISHED: 19:56 02 February 2016 | UPDATED: 19:56 02 February 2016

Data analysis from Hamptons shows that the new government Help to Buy London scheme will not be helpful for buyers in over half of London wards

Data analysis from Hamptons shows that the new government Help to Buy London scheme will not be helpful for buyers in over half of London wards

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Use this interactive map to see if your area is affortable with the new London Help to Buy scheme

The new and improved Help to Buy London scheme launched yesterday, but research carried out by Hamptons suggests that its helpfulness will be somewhat limited.

Johnny Morris, research director at Hamptons said: “Help to Buy is a sticking plaster, It’s a good short term measure. It helps people get on the ladder today, which is great, but it certainly shouldn’t be the only focus of government housing policy.”

Researchers at Hamptons discovered that 361 of London’s 625 wards will remain out of reach for those looking to use the new Help to Buy scheme, including most north London areas.

Previously, uptake of the scheme in London had been very low. Only 6 per cent of properties purchased using Help to Buy were bought in London, compared to 40 per cent in the north east of the country.

By December 2014, only five properties in Camden and seven in Westminster had been bought using the scheme.

Under the new rules, potential homeowners looking to buy in London can get a government loan for up to 40 per cent of the property value, where previously the cap was set at 20 per cent.

5 per cent of the property price must still be put down as a deposit. The remaining 55 per cent must be sought by the buyer as an equity loan.

Ten lenders have announced that they are offering mortgages under the new scheme, including Barclays and Nationwide.

Hamptons collected data on average incomes and prices for new build properties in each of the London wards.

Using the new Help to Buy rules they then calculated the income multiple, which indicates whether or not a new build would be affordable.

Mr Morris explained: “Our analysis shows that about half of London is affordable for the average couple looking to buy with Help to Buy, but that’s mostly outer London.”

With the Help to Buy property price cap set at £600,000, this rules out most inner London boroughs.

Quoted in the Daily Mail, Zoopla spokesperson Lawrence Hall said: “‘With the average property value in London currently standing £637,298 and the scheme only applying to new build properties with a value of up to £600,000, buyers will have to look hard for an affordable London home.”

There are also fears the scheme could cause house prices to rise even further.

Mr Morris said: “It will likely push prices up in the new build sector.”

Currently demand is far outstripping the supply of new build homes in London, in both private and rental sectors.

Concerns have also been raised about the levels of debt the scheme could incur.

Lucian Cook, head of residential research at Savills warned: “Buyers will have to think not just about what happens just now, in a period of very low interest rates, but what happens in five years time, when not only are the interest rates up but they incur the 1.25 per cent charge on the equity loan.”

Mr Morris explained: “Help to Buy, for the first five years, is cheaper than almost all other tenures, but it does have a sting in the tail that buyers need to remember. After 5 years Help to Buyers will have to start paying interest on their equity loan.”

It is debatable whether five years of cheaper living is worth the debt incured.

“Doing the numbers shows the average new build flat in London sold for £550k in 2015,” said Mr Morris. “A 40% Help to Buy equity loan would be £220k on that value, meaning after 5 years interest on that loan would be an extra £275 a month. Assuming prices continued to grow at about 5% a year, the total amount of that loan would also have grown, from £220k to £280k.”

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