Being a first-time buyer in London is expensive.
Anyone who hasn’t been living under a rock probably knows this. However, over the past five years, the price of buying your first home in the capital has increased by two thirds, making accessing the property ladder even more challenging than it has been in the past.
House prices across London
According to Zoopla, the average first-time buyer property in London costs £420,132, while the national average for all properties stands just above half of that, at 210,515.
Of course, the average cost of a home differs depending on the area of London you wish to live in, and naturally, they will require different deposits. Currently, an average deposit in Camden is £175,844, while you will need £131,827 to secure your first home in Haringey.
Both of those are still very high, with a difference of almost £100,000 when compared to the 2017 national average of £33,339 (Source: Halifax)
The effect on first-time buyers
Given the relatively high deposits needed by first-time buyers, it is hardly surprising that the average age for buying a house is three years higher in London than for the rest of the country, at 34 (though you could be forgiven for expecting a larger gap!)
Naturally, an increase in the amount of money needed for a deposit often means that it takes longer to save enough to secure a mortgage. This is true across the country, but London’s first-time buyers could face the need to save for an average of 10 years, compared to an eight-year national average (Source: Nationwide via BBC).
What can you do?
Buying your first home is expensive, especially in London; but it’s not necessarily impossible. There are many options which can make accessing the property ladder easier and speed up the home-buying process at the same time. There is help available to make both saving for a deposit, and securing a home, easier. For savings, these include ISAs (Independent Savings Accounts):
- Help to Buy ISA: Available from the age of 16. In the first month, it is possible to deposit up to £1,200, followed by £200 per month contributions. Each year, a government bonus equal to 25% of the previous tax years’ deposit will be added to the account. Money saved in a help to Buy ISA is tax-efficient.
- Lifetime ISA: Similar to a Help to Buy ISA, the Lifetime ISA is available to anyone aged 18-39 and has no monthly deposit limit. Although you must be under 40-years-old to open a Lifetime ISA, you can continue to make deposits until your 50th
Lifetime ISAs have an annual limit of £4,000, which forms part of your Annual ISA Allowance of £20,000. The main attraction toward Lifetime ISAs is the government bonus which is added at the end of each tax year and is equal to 25% of your contributions for the year.Money saved in a Lifetime ISA can be used toward a deposit on a first home, or as retirement income once you turn 60. Withdrawing money for any other reason will incur a 25% penalty.
There are a few factors which can make life easier when choosing a home, for example, you may want to consider:
- Compromising on area: While London is expensive compared to the rest of the country, some areas are more affordable than others. For example, Barking and Dagenham boast the lowest average first-time buyer property prices, while Kensington is the most expensive area (Source: Lloyds). Of course, you may not want to move far away from your job or family but it is worth looking at the options available.
- Shared ownership: This is a scheme run by some housing associations. It enables you to buy a home gradually, starting with a share between 25% and 75%. You will need to pay rent to the housing association on the portion of the home you do not yet own and can increase your share at a pace to suit you.
- Help to Buy equity loan: This government-backed initiative breaks the cost of buying your first home into three parts; a 75% mortgage, 5% deposit, supplied by you, and the remaining 20% as a loan, which benefits from interest-free repayments for the first five years.
- Low-deposit mortgages: Mortgages with deposits of 5% and less are available, which means that you can spend less time saving for a deposit. However, these often require a large amount of money to be held in an account as security, so you may need help from the bank of mum and dad.
Other factors which will help you to get a better mortgage rate or help you to get a mortgage in the first place, include:
- Your credit score: The better your credit score, the more likely you are to be able to access better interest rates on your mortgage, and the more likely lenders will be to accept your application in the first place. While it won’t affect the amount of deposit needed, or the price of your home, it could reduce your monthly mortgage payments and have an impact on the overall amount spent on the property.
- Shopping around: Look at all the options available to you when choosing a mortgage provider. Each lender will offer different benefits and interest rates, so be sure to find the one that is best suited to your needs.
- The size of your deposit: A higher deposit will mean that the amount you need to borrow overall will be lower. That could translate into lower monthly mortgage repayments.
More information on buying your first home can be found in our First Time buyer’s Guide.
If you’re ready to start looking for a mortgage, or just want to talk about your options in more detail, feel free to get in touch with us on 0207 808 4120.