Accessing the property ladder in London has long been a challenge for many aspiring homeowners. With soaring house prices and stringent mortgage requirements, first-time buyers are often left struggling to save for a sufficient deposit.
To address this growing affordability gap, the UK Government introduced the Help to Buy Equity Loan Scheme, offering up to a 40% government-backed loan on new build homes within Greater London. This initiative has played a pivotal role in supporting first-time buyers to achieve homeownership in one of the world’s most expensive property markets.
What is the UK Government 40 Loan Scheme?
The UK Government 40 Loan Scheme, part of the Help to Buy initiative, allows first-time buyers in London to borrow up to 40% of the property’s value from the government. This equity loan is interest-free for the first five years, making it significantly more affordable for buyers to secure a home with just a 5% deposit, while a 55% mortgage covers the remainder.
How the Scheme Functions?
Eligible buyers purchase a new build home valued up to £600,000. The government lends 40% of the purchase price (in London), and the buyer secures a mortgage for the remaining amount, minus their deposit. The government’s equity share increases or decreases in value based on the market performance of the home.
Who is Eligible for the 40% Equity Loan Scheme in London?
First-Time Buyer Requirements
To qualify, applicants must be first-time buyers, meaning they have never owned a property before, either in the UK or abroad. Joint applications are allowed, but all applicants must meet the same criteria.
Property and Developer Conditions
The scheme only applies to new build homes purchased through a registered Help to Buy developer. Properties must be the buyer’s primary residence and not used as a buy-to-let or second home.
Financial Eligibility
There is no income cap, but affordability assessments are conducted by lenders and Help to Buy agents. Buyers must demonstrate they can manage their mortgage and future equity loan repayments.
How Does the 40% Government Loan Benefit First-time Buyers?
The primary advantage of the scheme is that it significantly reduces the size of the mortgage and required deposit. This allows buyers to access homes in London that would otherwise be financially out of reach.
Advantages of the Scheme
- Lower Mortgage Payments: With 40% covered by the government, monthly repayments are smaller.
- Reduced Deposit Requirement: Buyers need only a 5% deposit, easing the saving burden.
- Access to Better Properties: The scheme broadens access to higher-quality or more spacious homes in desirable areas.
What Are the Repayment Terms and Interest Details of the Scheme?
Interest-Free Period
For the first five years, the equity loan remains interest-free. This gives homeowners time to stabilise their finances and potentially pay down a portion of the loan before charges begin.
Interest After Five Years
In the sixth year, interest begins at 1.75% of the loan amount and increases each year based on the Retail Prices Index (RPI) + 1%. This can add a significant cost over time if the loan is not repaid or reduced.
Repayment Based on Property Value
Repayments are made as a percentage of the market value at the time of repayment, not the original loan amount. If the property appreciates, the repayment sum increases proportionally.
What Are the Risks and Limitations of the 40% Loan Scheme?
Shared Equity Ownership
Because the government owns a percentage of the home, buyers do not hold 100% equity. This affects how much profit is retained upon selling.
Market Dependency
The amount owed increases with property values. If the market rises, the repayment to the government becomes more expensive, potentially cutting into the homeowner’s profit.
Restrictions
The home must be a main residence. Letting or subletting the property is not permitted. Additionally, some developers may add premiums or costs related to the scheme.
How Does This Scheme Compare With Other Housing Assistance Programmes in the UK?
Help to Buy vs. Shared Ownership
Shared Ownership allows buyers to purchase a percentage (usually 25%–75%) of a property and pay rent on the rest. While this lowers upfront costs even further, buyers don’t fully own their home until they staircase to 100%.
Mortgage Guarantee Scheme
This newer initiative guarantees a portion of the lender’s risk, allowing 95% mortgages. However, it doesn’t reduce the overall cost of the home or provide interest-free support like the Help to Buy equity loan.
What Are the Alternatives After Help to Buy Ends in March 2023?
Although the Help to Buy: Equity Loan scheme officially closed to new applicants in March 2023, the UK housing market has since introduced several alternative pathways aimed at assisting first-time buyers in 2025. While none offer the same 40% government equity model in London, these evolving solutions still provide meaningful support.
Lifetime ISA (LISA)
Still available in 2025, the Lifetime ISA remains a popular option for first-time buyers. Individuals aged 18 to 39 can save up to £4,000 annually, receiving a 25% government bonus (up to £1,000 per year). Funds can be used either for purchasing a first home up to £450,000 or for retirement after age 60.
Deposit Unlock Scheme
This initiative, continuing into 2025, allows buyers to purchase new build homes with just a 5% deposit. Supported by major UK housebuilders and mortgage lenders, the scheme offers a 95% loan-to-value (LTV) mortgage, helping those with limited savings enter the property market without relying on family support or lengthy saving plans.
Developer Incentives in 2025
To fill the gap left by Help to Buy, many developers have launched their own buyer assistance programmes. These may include:
- Mortgage payment holidays or monthly contribution offers
- Part-exchange options for those selling an existing home
- Shared equity or reduced deposit schemes, unique to each development
Buyers in 2025 are encouraged to thoroughly compare these incentives, as they often vary between developers and may include eligibility requirements or regional limitations.
How Can London Residents Apply for the 40% Equity Loan?
While the scheme is now closed to new applications, previously it required coordination with:
Step-by-Step Application Process
- Register with a Help to Buy agent covering your area.
- Find a new build home through a registered developer.
- Reserve the property and submit a Property Information Form.
- Obtain mortgage approval for the remaining balance.
- Complete legal checks and contracts via solicitors and Help to Buy agents.
- Exchange and complete the property purchase.
What Impact Has the Scheme Had on the London Housing Market?
Positive Impact on Homeownership
The scheme supported over 350,000 households across England, with Londoners accounting for a large share due to the increased 40% equity loan.
Pricing Influence
Some critics argue that the scheme inflated new build prices, creating artificial demand and potentially excluding lower-income buyers in the long run.
Long-Term Affordability
While it improved access, many worry about the scheme’s sustainability and the growing need for more permanent housing support programmes.
Is the Uk Government 40 Loan Scheme the Right Choice for London Homebuyers?
For many, the scheme provided an unprecedented opportunity to step onto the housing ladder. However, it came with long-term financial commitments and property market exposure.
Features of the 40% Government Loan Scheme
| Feature | Details |
| Scheme Name | Help to Buy: Equity Loan (London) |
| Government Loan Amount | Up to 40% of property value |
| Eligibility | First-time buyers only |
| Property Type | New build homes only |
| Maximum Property Price | £600,000 |
| Deposit Requirement | 5% of purchase price |
| Interest-Free Period | First 5 years |
| Interest from Year 6 | 1.75%, increasing with RPI + 1% annually |
| Ownership Type | Shared equity |
| Repayment Type | Based on current market value |
| Scheme Status | Closed to new applicants (as of March 2023) |
How Much Can Buyers Save With the 40% Loan Scheme Compared to Traditional Mortgages?
The UK Government 40 Loan Scheme significantly improves affordability by reducing the upfront financial burden. Let’s compare what a typical buyer might pay under the Help to Buy 40% scheme versus a traditional mortgage.
Case Comparison: Help to Buy 40% Loan vs Traditional Mortgage
Assuming a £500,000 new build home in London, here’s how the two options stack up:
| Scenario | Help to Buy 40% Scheme | Traditional Mortgage (No Scheme) |
| Property Price | £500,000 | £500,000 |
| Buyer Deposit (5%) | £25,000 | £50,000 (10%) |
| Government Equity Loan | £200,000 (40%) | £0 |
| Required Mortgage | £275,000 (55%) | £450,000 (90%) |
| Monthly Mortgage Repayment (est.) | £1,250 (2.5% interest, 25 yrs) | £2,045 (2.5% interest, 25 yrs) |
| Interest on Government Loan | £0 (first 5 years) | N/A |
| Total Upfront Cost | £25,000 | £50,000 |
Buyers using the Help to Buy scheme not only save on their initial deposit, but also benefit from lower mortgage repayments, especially during the first five interest-free years. This financial breathing space can make homeownership more manageable, particularly for young professionals or growing families in London.
What Lessons Can Future Housing Schemes Learn From the 40% Equity Loan?
As the Help to Buy Equity Loan concludes, it leaves behind both success stories and valuable critiques. Analysing its impact can help shape future policies aimed at solving the UK’s housing crisis.
Lessons for Policy Makers
- Scalability with Regional Variance: The 40% cap in London versus 20% elsewhere showed that regional property pricing must guide funding structures. Future schemes should remain flexible and location-aware.
- Accessibility vs Inflation: While more people accessed homes, some argue the scheme inflated new build prices, reducing its long-term affordability impact. Future efforts must include price caps and developer accountability.
- Exit Strategy for Buyers: Many buyers were unaware of how equity repayment would work upon selling or refinancing. Future schemes should include clearer education and ongoing support.
- Sustainability: As Help to Buy ends, no full replacement has filled its shoes. New policies must be long-term, self-sustaining, and inclusive for various income levels.
The Future of Housing Support
Although Help to Buy has ended, its structure could inspire a new generation of housing support systems in the UK. Combining government equity loans, shared ownership, and modern rent-to-buy models could offer more holistic solutions to London’s persistent housing challenges.
Conclusion
The UK Government 40 Loan Scheme provided a vital stepping stone for first-time buyers in London, easing access to the property ladder through reduced deposits and government-backed equity.
While the scheme has now ended, its impact on affordable housing continues to shape conversations about future support for homeownership in high-cost areas. Understanding how it worked and what replaces it is essential for anyone navigating the London housing market.
FAQs About UK Government 40 Loan Scheme
Can the 40% government loan be used on older homes?
No, the scheme only applied to new build homes purchased from registered Help to Buy developers.
What happens if the home value drops before repayment?
The repayment is proportional to the home’s current value, so if the value decreases, the repayment amount may also decrease.
Can I pay off the government loan early?
Yes, buyers can partially or fully repay the loan early through a process known as “staircasing,” typically in 10% increments.
How does the government get its money back?
When the home is sold or the loan is repaid, the government receives its percentage share of the property’s current market value.
Is there an income cap for applicants?
No, there is no maximum income threshold, but buyers must prove they can afford the mortgage and future loan payments.
Are there any hidden fees or extra costs?
There may be valuation, solicitor, and admin fees, especially during early repayment or property resale under the scheme.
Will this scheme return in a different form after 2023?
While the Help to Buy Equity Loan has ended, new schemes and developer-led solutions continue to emerge, but none replicate the full 40% support structure in London.
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