Buyers in Greater London will have to contribute a 5% deposit, with the government stumping up a 40% loan and the remaining 55% coming from a mortgage lender on new homes costing up to £600,000.
The scheme was unveiled by Chancellor George Osborne in today’s joint Spending Review and Autumn Statement announcement.
Osborne said: “The government will help address the housing crisis in our capital city with a new scheme: London Help to Buy.
“Londoners with a 5% deposit will be able to get an interest free loan worth up to 40% of the value of a newly built home.”
The announcement was met with a mixed reception.
Mark Hayward, managing director of the National Association of Estate Agents, said: “The introduction of the London Help to Buy initiative is a step in the right direction for FTBs, although a 5% deposit on the average price of a home in London is still not affordable enough.”
And Russell Quirk, chief executive of eMoov online estate agent, said: “Given that this translates to a deposit of £25,000 on the average London house price, I can’t imagine it will help too many who are struggling to get on the ladder in the first place.”
Adrian Anderson, director of mortgage broker Anderson Harris, disagreed. He said: “Help to Buy has been hugely successful across the country but hasn’t had such a big impact in the capital because property prices are that much higher.
“Offering a 40% interest-free loan to London buyers will make a huge difference, enabling many to get on the housing ladder when they simply couldn’t before.”
Most damning of the new scheme was Stuart Law, chief executive of property investment company Assetz for Investors, who told investors to get out of the capital while they can.
He said: “It is foolish to see the announcement of the London Help to Buy scheme with 40% interest free loans as this creates further upward price pressure on the capital when in fact subsidies should be being removed not added to this location.
“When the price reversal comes in London this will leave many in negative equity as a direct result of this policy and having to take on even more debt as a result of the further upward impetus on prices this policy will have in London.
“It is time for investors to leave the capital and invest in safer locations around the UK.”
