How to buy a house or flat in London

  • London is one of the best places to live but also one of the most expensive places to purchase a house in the UK—and by a considerable mile.  The average price of houses in London was about £496,066 at the end of last year, meaning it was near twice the average UK home price, according to the Her Majesty’s Land Registry.

Without mincing words, buying a house in UK’s capital city is no mean feat and for first-time buyers, it doesn’t get any cheaper either. First-time buyers in London would have to make a huge average deposit of nearly £131,000 which is more than double the average price in the UK of approximately £57,000.

While buying properties in London is quite expensive, home prices can vary steeply depending on the borough you’re buying in. The most expensive places to purchase a home in London are Camden, Westminster, Kensington, City of London, Chelsea, Fulham and Hammersmith with an average price of £800,000 while the cheapest regions are Croydon, Bexley, Havering, Barking, Newham and Dagenham with an average price of £350,000.

To finance your home purchase, you would need to get a mortgage but even that can seem like a daunting task, especially for first-time buyers. A mortgage calculator is very useful when estimating mortgage affordability based on income and before you start searching for a suitable home on the market, first get an idea of the type of property you can afford and the amount of deposit required.

Generally, financial institutions would allow you to collect a mortgage that’s nearly 5 times your current total annual income. For example, if your annual income is £50,000 and you’re the sole financer of the house you intend to buy, you’re likely to get a mortgage of about £250,000. The total amount of money you can borrow would increase if you and your partner are both financing the purchase.

There are several other factors that your lender would consider before approving your mortgage like personal circumstances, credit rating, average expenditure and existing debt portfolio. However, some property types are difficult to acquire mortgages on such as newly built properties, studio flats and short leases.

If you intend to build your own property, mortgage lenders might restrict your approved sum to about 85 per cent of the total value of the newly built house or in the case of a flat,75 per cent. All this in comparison to an older existing property where you can get 95 to 100 per cent mortgage. On the other hand, studio flats are difficult to obtain a mortgage for since they are quite difficult to sell and for short leases, there are more expensive to renew leading to a devaluation of the property.

There are several schemes that you can take advantage of to help reduce the financial impact of buying a home in London. Under the government-approved London Help to Buy program, prospective homebuyers in Greater London can apply for as high as 40 per cent equity loan on the house’s value. Both first-time homebuyers and existing homeowners are eligible for these equity loans.

Chancellor Rishi Sunak also announced that the government will bring back the 95 per cent mortgage offer to first-time buyers after originally putting it on hold due to the impact of the coronavirus pandemic. London Living Rent is another housing scheme that was designed to help many middle-income earners in London climb up the property ladder by offering below-market rates on rents, thereby allowing them to save up more money towards their deposit.

If you want to save some money, buying a house further away from London can be a cheaper alternative. However, you would still need to factor in other living costs such as commuting to ensure the all the money saved towards your mortgage payments don’t get spent on transportation.

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