Lenders for the new London Help to Buy are offering mortgage rates as low as 1.55% to first time buyers and home movers.

The London Help to Buy scheme launches today and is available to all first time buyers and home movers offering interest free equity loans of 40% on new build properties valued up to £600,000.

Homebuyers only need a 5% deposit yet the government loan of 40% is treated as capital with the balance of 55% being a mortgage from the lender.

As a result the loan to value (LTV) is 45% and with equity balance of 55% the lenders are prepared to offer very competitive mortgage interest rates.

Competitive rates of interest

The London Help to Buy scheme equity loan is interest free for five years and after this time you will be charged interest starting at 1.75%, rising each year in line with inflation plus 1%.

From 1 February the mortgage lenders are Barclays, Lloyds, Nationwide and Leeds Building Society.

Barclays is offering a two-year fixed rate mortgage at 1.55% and a five-year fixed rate of 2.19% both with an arrangement fee of £999.

The Leads Building Society offers a two-year fixed rate mortgage at 1.79% with a £799 arrangement fee and a five-year fixed rate of 2.45% with a £199 arrangement fee.

Nationwide is offering a two-year fixed rate mortgage at 1.89% and a five-year fixed rate of 2.64% both with an arrangement fee of £999.

Help to Buy schemes in London

To date the Help to Buy scheme both the equity loan and mortgage guarantee scheme has been more popular outside of London with 94% of the 130,000 the transactions.

The scheme promotes new home ownership for people that are renting and is not available to switching remortgage buyers or buy-to-let investors.

In London to the end of September only 3,548 homebuyers had accessed the equity loan scheme out of a total of 62,569.

Originally the scheme offered a 20% equity loan and this has been extended to 40% for homebuyers in London only. As a result the government expects the demand to increase by another 10,000 with the scheme.

According to the Halifax in London the average house price paid by first time buyers in London is £367,990. By using London Help to Buy they you could have a 5% deposit of £18,400, a capital loan of £147,196 and mortgage of £202,394.

Although the scheme can look attractive initially, in five years time you would need to pay interest of 1.75% on the capital loan as well as the lenders mortgage resulting in a sudden rise in costs.

In the above example you would pay an additional £2,575 per year although you can buy back the equity loan with a larger mortgage if your income has increased over the five year period.

Help for first time buyers can also come from family members where equity release buyers can access wealth using a lifetime mortgage and gift to children or grandchildren the deposit on their first home.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

Learn more by using the property value tracker chart, mortgage costs calculator and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property to buy a more expensive home or reduce inheritance tax owed by your beneficiaries.

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