1st April 2017
The London Help To Buy Scheme, is an underused scheme. It was introduced in February 2016, off the back of the wider already existing Help to Buy Scheme. The government recognised the biggest obstacle for new buyers to purchase their homes is the deposit. The scheme aims to bridge this gap by providing a loan of up to 40% of the purchase price; this means a new buyer can purchase a property with only 5% of their own deposit.
This scheme is valid for first time buyers and home movers. It is restricted to a maximum purchase price of £600k and valid for new builds only. This is the interesting part, there is ZERO interest on the loan for five years. After which it attracts an interest rate of only 1.5% + base, currently this come to only 1.75%.
Given that the buyer will be putting down a larger deposit, this means they will qualify for a more favourable interest rate from the lender. Higher rates of interest tend to be applied for mortgages of 95%, as the risk is higher for the lender.
This is as good as it gets in this environment. Pre credit crunch, deals were done with no money in the property, if structured in the right way. At times if the purchase price was low enough you could even get a cash back on purchase. Yet the take up was relatively poor. There was a lack of belief this was even possible.
This is very interesting, not only from the view point of an end user purchaser, but also a developer. The headline in the Evening Standard, dated 16th January 2017, read: End of the £300,000 London home is in sight. The article went on to explain that last year there were 104 wards where you could purchase a home for less than £300,000 in the beginning of the year, by the end there were only 40. There are more homes priced over £1m than there are for £300,000 and less.
Why is this figure important? Because the average household income is £50k, which enables a borrowing of £250k, assuming they can save up a deposit of £50k, therefore their purchasing power is £300k.
Homes at this value disappearing is very problematic; it means you will have hollow communities where homes will be owned mostly by investors, owners who don’t live in what they own.
On the flip side this is a very important point to note for developers, given the acute lack of shortage of homes in general, and specifically homes at this level. If new developments can be designed with the criteria of the Help to Buy Scheme in mind, they will fly off the shelves even before they are built; even at a premium to other similar properties outside of the criteria, because of the acute shortage.
It is with this backdrop we are investing into an office to residential scheme in West London. The majority of the units will be designed to fit the criteria of the government scheme and we anticipate a quick off plan sell out of the whole development, for the reasons given above and due to the high demand given the location.
The deal is fresh, and requires an investment of circa £1.35m, with an anticipated return of investment within a year. Get in touch now, if you are interested in this deal.
Suresh Vagjiani
