Tips and strategies for first time buyers in London

Where do you begin as a first-time buyer in London?

Putting your foot on the first rung of the property ladder in London is an increasingly daunting prospect. According to Rightmove, the overall average house price in the capital last year was an eye-watering £670,463.

The majority of properties sold, of course, were flats but even they attracted £496,155 on average and the average deposit paid by a first-time buyer was £125,000.

But these examples are averages taken from sales across the city as a whole – including Prime and Super Prime areas where prices are sky high.

More recently, the post-pandemic property buying boom has eased and the market has steadied. Despite consecutive base rate rises, mortgage rates have started to come down and inflation is still expected to drop significantly in the second half of the year.

So while no-one is expecting bargain basement prices in London, for those who make the short-term sacrifice for long-term gain, there is still strong value in London’s housing market, particularly in those areas just outside the centre.

Docklands, Dulwich, Oval, Tooting are all within a few minutes travel time to the centre, and while prices are substantially lower, the potential for capital growth is well-proven.

So as a first-time buyer, where do you begin?

Great saves

Start saving. Every available penny should be set aside. The higher the deposit you can put down on a property, the lower your mortgage repayment will be. Go through your monthly outgoings and put a red line through all unnecessary expenditure. It’s short-term pain, remember?

And while you’re doing that, consider a Lifetime ISA. If you’re aged between 18 and 39, you can deposit up to £4000 a year which the Government will top up with a 25% bonus up to a maximum of £5,000.

Ask the family

As with all problems that seem insurmountable at first glance, talk to those you trust – friends and family. The chances are that parents and other relatives, if they own their own home, will have moved house several times in their lives. They will have had to pay mortgages, choose estate agents, engage conveyancers and organise removals – the numbers may have been significantly smaller back in the day but the process is more or less the same.

Know your limitations

Work out what your financial limits are and don’t overreach. To do this, you will probably need some advice from a mortgage broker. He will go through your regular income and expenditure and outline some mortgage options based on what is achievable. We offer free mortgage advice, so just get in touch if you want to speak with someone.

Make sure your credit rating is as high as possible. How might you be able to boost it? Are there any outstanding CCJs? Could you take an extra part-time job to boost your income?

Lenders often require a higher deposit from first-time buyers but there are some other options available.

The Government has a new scheme called Deposit Unlock. If a buyer can raise a 5% deposit they can access preferential 95% loan to value mortgages from certain lenders, however this scheme is only available on new-build homes where the developers have agreed to take part.

The Bank of Mum and Dad

Many first-time buyers have been lucky enough to receive help on a property purchase from the Bank of Mum and Dad – although the purse strings have definitely been tightening recently because of the cost-of-living crisis and interest rate fears. Even so, according to Savills, parents forked out £9bn last year to support their children in a home purchase.

Nevertheless, if you’re fortunate enough to be in this position you need to let your solicitor and your lender know because it may affect your mortgage options and there could be tax implications, too.

The Homeowners Alliance offers more advice about this here.

Don’t forget your Stamp Duty

First time buyers in England are exempt from stamp duty provided they are buying a property for less than £425,000 and they are going to live there. If the property is less than £625,000, they will pay the duty on the amount over £425,000. This relief was announced by the Government as a temporary measure and it is scheduled to cease at the end of March, 2025.

Finally, when making all your affordability calculations, don’t forget to take the running costs into account: heating, council tax, water rates…it all mounts up. And remember that interest rates are subject to change and house prices can fall as well as rise. Buying a home is a long-term commitment and all first-time buyers should allow themselves some financial breathing space.

We’d love to help you buy your first home. Speak to our friendly team at your local ludlowthompson office here. We’d be delighted to see you.