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First-time Buyer

Thousands of Help to Buy borrowers facing financial hardship as fee-free period ends

Paloma Kubiak
Written By:
Paloma Kubiak

The Mayor of London has called on the Government to freeze payments for Help to Buy loans as figures reveal that up to 4,500 London homeowners are at risk of financial hardship as mortgage costs continue to rise and the Help to Buy loan grace periods end.

New analysis from City Hall has revealed that thousands of Londoners on the Help to Buy scheme could find themselves struggling to pay increasing monthly bills and mortgage repayments, as a further hike in interest rates looms.

A London first-time buyer who bought their home through the scheme five years ago is most at risk, with their interest-free period finishing.

The Help to Buy scheme offered first-time buyers the chance to purchase a new-build property with a minimum 5% deposit. They could also use an equity loan of up to 20% of the purchase price – or 40% in London – where the loan is interest-free for the first five years. Help to Buy closed for new applications on 31 October 2022.

Due to higher mortgage interest rates, London homeowners may have to fork out an extra £900 a month in mortgage and extra help to buy payments.

City Hall noted that by introducing a payment holiday, London-based Help to Buy borrowers could save on average £3,300 a year.

Mayor of London Sadiq Khan, said: “People in London using Help to Buy may be on the housing ladder, but many are on low pay and facing growing levels of economic insecurity.

“As Help to Buy grace periods come to an end and mortgage rates continue to rise, thousands of London’s recent first-time buyers are facing huge increases in their monthly payments.

“Ministers could do something to support these households straight away, by suspending or freezing Help to Buy loan payments, giving people breathing space when they need it most.”

The Government ‘can’t hang vulnerable homeowners to dry’

Khan’s call for a payment freeze on help to buy follows a separate study which showed a third of London mortgage holders will struggle to afford their repayments over the next six months.

With pressure to address the capital’s mortgage plight, Paula Higgins, chief executive of HomeOwners Alliance, believes Number 10 “can’t hang vulnerable new homeowners out to dry”.

She said: “Homebuyers that purchased through the Help to Buy scheme are facing a barrage of soaring costs. Freezing the loan payments as the Mayor suggests could have a significant impact on desperate household budgets at this time.

“In the meantime, homeowners worried about their monthly mortgage payments shouldn’t bury their heads in the sand. HomeOwners Alliance has lots of helpful resources for homeowners, so I strongly encourage Londoners struggling with their mortgage repayments to visit the site.”

Related: End of Help to Buy: 10 alternatives for first-time buyers