2013 saw the Government’s first step into tackling London’s housing crisis. With their new Help to Buy scheme more people are able to become homeowners.
“We are helping a situation where, yes, the economy is recovering but it’s moving out of the rescue situation into recovery and that’s where Help to Buy will really help,” Chancellor George Osborne told The Guardian.
The first component of this scheme is that the Government has put aside £3.5 billion for shared equity loans. The second is to give aspiring homeowners 20% equity loan interest free for the first five years. The loan will then be paid back when the homeowner sells the house.
This scheme is available to everyone who can afford it. But in February 2016 the Government started attacking London’s housing crisis specifically.
The London Help to Buy scheme reflects the prices of London’s houses. Now homebuyers can get an equity loan of up to 40%. The banks that are teaming up with the Government are Lloyds, Halifax, Natwest, Barclays, Nationwide and Royal Bank of Scotland.
However, this Government scheme is only for new-build homes, and the house must fall within the price tag of £600,000.
The shadow opposition has criticized these new schemes, defining them as “dangerous”.
“It’s a real worry, these government schemes,” said Tom Copley, Labour GLA member, who yesterday attended a London housing crisis debate at London Metropolitan University.
“All Help to Buy does is help to inflate demand which pushes the prices up further rather than increasing the supply of houses, which it what we need to do,” he said in an interview following the debate.
“I worry that these government schemes, which is going to be encouraging, people to take on an extraordinary amount of debt, with very little equity in a property. And that can store up problems in the future with things like negative equity and things like that.”
After five years of the interest free of equity loan the government charges 1.75% of the loan’s value and the fee increases every year. The interest that is paid back every year does not contribute towards the equity loan itself.
“It’s a great deal for homebuyers. It’s a great support from homebuilders,” added Chancellor George Osborne.
“And because it’s a financial transaction, with the taxpayer making an investment and getting a return, it won’t hit our deficit.”
By: Kimberley Bastin and Laura Mendes
Image Credit: Creative Commons