Could it be getting easier to purchase a home working in london?

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Asking prices for properties in London are falling, but could it be really becoming simpler to purchase your first home in England’s capital?

First-time buyers have been handed a lift recently, using the new 95% mortgage guarantee scheme and extension of the Assistance to Buy scheme offering a glimmer of optimism after a year of disappearing mortgages and rising house prices.

For many first-time buyers, London is simply too expensive for consider, with soaring prices meaning just those using the deepest pockets need apply.

But could that be set to alter? Here, Which? explains what’s became of house prices in London in the last couple of years and look at whether making to the property ladder is a possibility or pipe dream for first-time buyers in 2021.

Asking prices fall for first-time buyers in London

New data from Rightmove shows that London is the only region of the UK where asking prices for properties have fallen in the past year.

The portal says the average selling price on a first-time buyer property working in london recently was lb478,068 – down 2% on last year’s figure (lb486,383).

This isn’t a brand new trend, either. Rightmove says this year’s average prices are actually down 5% around the figure recorded 5 years ago in February 2021 (lb504,264).

The chart below shows how prices have changed across Britain between February 2021 and February 2021.

What’s happened to sale prices in London?

Rightmove’s data is in line with the price that sellers list properties at, rather than the price they end up being sold for – that is even less.

The newest data (December 2021) on sold properties from the Land Registry shows the average price paid by first-time buyers was lb431,160.

In contrast to Rightmove’s figures, the Land Registry shows an increase of seven.6% since February 2021, when buyers paid an average of lb400,475.

The Land Registry’s figures are more definitive than those from Rightmove as they only show properties that have been sold (instead of listed with auctions), but the lag in registering sales often means the figures can be a little outdated by the time they’re published.

How do house prices vary around London?

Average costs are useful in giving us an indication of what’s happened inside a specific area, but London is really a vast city with 33 boroughs.

Our analysis of data from the Land Registry shows the typical price paid by first-time buyers in London varies from lb300,706 in Barking to some whopping lb1.11m in Kensington and Chelsea.

You will discover the typical first-time buyer price for every of London’s boroughs in the map below.

How big a deposit do you need to buy a home working in london?

Many first-time buyers who’d ideally prefer to buy in London end up looking further afield due to the capital’s high property prices – and that was particularly the case in 2021.

Historically, buyers could buy a home having a 5% deposit, however this has become increasingly difficult because the start of the pandemic.

Buying with a 5% deposit, an average-priced first-time buyer property (lb431,160) would need a down-payment of lb21,558. But if you can’t get accepted for any 95% mortgage and also have to set up 10% instead, this deposit would rise to lb43,116.

There’s also the question of your borrowing power. In the example above, a 10% deposit could leave you needing to raise just over lb388,000 through your mortgage.

Lenders will often permit you to borrow up to four and a half times your household earnings. In this scenario, you and also anyone you’re buying with will have to earn a combined total of just over lb86,000 to gain access to enough – which may be feasible for some couples, but would be beyond most people buying alone.

How has Help to Buy helped buyers working in london?

With these difficulties in mind, the assistance to Buy scheme allows buyers in London to obtain an equity loan for 40% of a new-build property’s value, double the 20% available elsewhere in the country.

This means you can purchase a property working in london having a 5% deposit, a 40% equity loan and a mortgage since the remaining 55% – theoretically making it easier for you to get accepted for any mortgage.

Up to September 2021, 22,746 homes had been bought using London Assistance to Buy, with 17,706 benefiting from the entire 40% equity loan.

The average cost of properties bought by first-time buyers within the first nine months of 2021 was lb444,583. Buyers had an average household salary of lb70,235.

The pitfalls of Help to Buy equity loans

London Assistance to Buy makes it easier to buy a house by only requiring a 55% mortgage, however the equity loan itself can cause issues in the long term.

The loan is zero interest for the first 5 years, but following this you’ll start spending interest – which can be problematic if you’ve taken out a substantial equity loan.

The biggest equity loan possible in London is lb240,000 (40% of the lb600,000 property). The government’s example calculations show you’d have to pay the following interest in your loan from year six.

Year Annual interest Monthly interest
Years 0-5 lb0 lb0
Year 6 lb4,200 lb350
Year 7 lb4,392 lb366
Year 8 lb4,584 lb382

Note: A lb1 a month (lb12 a year) management fee also applies. Figures obtained from the government’s Help to Buy guide for homebuyers.

Will the new mortgage guarantee scheme make a difference?

In the 2021 Budget, the federal government announced it might guarantee a large number of low-deposit mortgages to help individuals jump on to the property ladder.

The mortgage guarantee scheme allows buyers to get a 95% mortgage on new-build and existing homes priced as much as lb600,000 anywhere in the united kingdom.

The number of 95% mortgages available has plummeted within the last year, and this scheme aims to make it less risky for banks to offer deals to buyers with a small deposit.

To qualify, you’ll need a 5% deposit and can need to stick to standard lending rules, meaning you’ll likely still simply be able to borrow four . 5 times your annual household income.

Making 95% mortgages extensively available will make it more convenient for buyers in London in order to save a deposit, but many are likely to still end up priced out by high property prices.

Other methods for getting to the housing ladder

Shared ownership schemes

These schemes involve purchasing a stake of less than 25% of the property and paying rent around the remainder.

A word of warning, though – the overall monthly costs of shared ownership schemes could be high.

Guarantor mortgages

Lenders currently provide a selection of guarantor mortgages, which permit a parent or gaurdian or family member to help you buy a home.

Guarantor mortgages usually involve the household member utilizing their home or savings as collateral in the event you default on (fail to pay) your mortgage, but innovative products such as ‘joint borrower sole proprietor’ mortgages happens to be an alternative for many.

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