Getting a foot on the property ladder in London is no mean feat. London property prices are widely publicised as being the most expensive in the UK and a very difficult market for first time buyers.
While property prices in London have slowed for the first time in 2016, compared to the national average 3.7% vs. 4.5%, it is still a highly competitive market for those looking to buy their first home.
The UK House Price Index (HPI) puts the average house price for London at £484,716 – over twice the national average at £232,885. Flats and maisonettes average £425,732, terraced houses £503,185 and semi-detached properties £585,741. Want a detached house? You’ll need £914,387 on average to make that dream a reality.
In 2016 the average price paid in London by a first time buyer was £402,692 an increase of 81% since 2009.
So are there any boroughs in London that offer more affordable homes? Estate agent eMoov.co.uk has crunched the figures and produced a report into the best locations for first time buyers, nationwide. Here is a summary of their findings for London boroughs – all below the capital’s average property price.
- Barking and Dagenham: £254,600
- Havering: £281,836
- Bexley: £285,464
- Croydon: £301,001
- Sutton: £312,978
- Hillingdon: £333,071
- Redbridge: £337,176
- Bromley: £338,284
- Greenwich: £341,039
- Newham: £344,156
- Houslow: £348,214
- Lewisham: £357,086
- Harrow: £373,668
- Waltham Forest: £397,997
- Kingston: £408,966
- Brent: £416,773
- Ealing: £420,981
- Tower Hamlets: £442,754
- Barnet: £441,839
- Lambeth: £458,281
- Southwark: £459,473
At the other end of the spectrum is Kensington and Chelsea with an average house price of £1.1m!
Even in the more affordable boroughs, first time buyers looking to buy in London (and also in the home counties) need to be earning a significant salary, and have had sufficient time to save a deposit – or have received a windfall by other means. Typically London first time buyers are 32 years plus, and in some boroughs, such as Barnet and Ealing, the average age is higher at 34.
Also more and more first time buyers are also looking for longer mortgage terms, 30 – 35 years is becoming increasingly common as buyers balance property prices with repayment costs. According to the Halifax 28% of first time buyers taking a mortgage opted for 30-35 year term.
What help is there to get on the property ladder in London?
Help To Buy Equity Loan
Back in December 2016, the government’s Help To Buy scheme came to an end. This programme allowed borrowers to secure a mortgage with just a 5% deposit. Many mortgage lenders now offer similar high loan-to-value loans for first time buyers.
However, another scheme will continue until 2020 and could provide first time buyers in London with an opportunity to get on the property ladder. This is the Help To Buy Equity Loan scheme where the government will lend up to 40% of the cost of a new build home with a 5% deposit and 55% mortgage.
The 40% loan is interest free for the first five years, with a monthly management fee of £1. From year six, 1.75% is payable on the equity loan, rising annually by RPI (Retail Price Index) inflation plus 1%.
There are number of housing associations offering shared ownership schemes where a buyer purchases between 25-75% of the cost of the property and pays rent on the remaining. Ultimately home buyers can increase the share they own by buying additional shares, based on the current market value.
If you’re a first time buyer and under the age of 40 you could get help buying a new build with Starter Homes. Homes in the scheme are sold at 80% of the market value; with properties not exceeding £450,000 in London after the discount has been applied. However, you won’t be able to sell or rent out your property for 5 years after buying it.
Buy With A Friend
While many first time buyers are increasingly buying as a couple (with many 30 year olds cohabiting or married by the time they buy their first home), for a single person on one salary it can be a struggle. Getting a joint mortgage with a friend or a family member could be the best way to buy and own as ‘tenants in common’.
Naturally there will be a lot of questions to ask about how this will work in practice, such as what happens if one person wants to sell and the other person doesn’t. But it can be a good way of getting a foot on the property ladder.
Unless you have won the lottery or had a windfall of some other description, you will need a mortgage offer in principle before you can seriously start looking for your first London home. If you would like to discuss your options with me, and get some independent advice on what steps you can take, give me a call. Phone 020 3355 4841 or email firstname.lastname@example.org