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The True Cost of Buying a Property in London

September 9, 2020

Living in shared rental accommodation can be pretty hard work at the best of times, but the recent lockdown and the surge in working from home has made it even more of a challenge. If you’re getting fed up with the noise and disruption of trying to work and live in an overcrowded space, you’re probably thinking about how to move to an affordable home of your own.

At first sight, that’s not an easy option in London. Property prices can be prohibitive, even for smaller homes. But, a careful look at some outer London locations will surprise you. And, with the current Stamp Duty holiday and an extension of the government’s Help to Buy scheme, that first home could be closer than you think.

Prices and salary requirements to buy property in London

First a reality check - how much will you need to earn to buy even the smallest home in London? We’re talking about one-bedroom starter homes here.

The good news is that recent research shows that there are five London boroughs where you can be confident of buying with a salary of between £45,000 and £48,000: Redbridge, Barking and Dagenham, Bexley, Sutton and Croydon. First-time homes there, on average, range from £225,000 to around £250,000. To buy one of those, Homes and Property reports you'll need a deposit plus a mortgage of around four and a half times your salary.

Depending on where you work, you might need to take travel costs into consideration too. But if you’re intending to work from home long term, that’s less of a problem.

If you’ve got your sights on a property closer to central London, you’ll be looking at higher prices and a much bigger salary and deposit. If your ambitions reach to Westminster or Kensington and Chelsea, for example, you’ll need to be earning over £90,000 for the smallest home and have a deposit of at least £50,000 tucked away.

One-bedroom flats in popular regeneration areas like Woolwich or Acton in West London are more expensive than the five boroughs we mentioned earlier, but affordable if you’re earning around £60,000 a year. There, we’re talking about first home prices between £250,000 and £300,000.

Impact of the Stamp Duty holiday

If you are thinking of buying a home in one of the more affordable areas, there’s an added bonus. The Chancellor announced a holiday on Stamp Duty and its biggest impact is on homes under £500,000.

View our top pick of homes under £500,000 in the North, South, East and West

From now until March 31st 2021, there is no Stamp Duty for first-time buyers to pay on properties in that bracket, and that represents a big saving on the additional costs you incur on buying a home — as much as £15,000 at the top end.

The big savings are encouraging people to buy, so demand for properties under £500,000 is soaring and that’s creating hotspots in certain parts of London. That’s not just from home buyers. The savings are encouraging landlords and other investors to buy up lower-priced properties to add to their rental portfolios.

So be prepared to act quickly if you think you’ve found a bargain in an area you like.

Research by Rightmove has highlighted three areas where the impact of Stamp Duty savings is particularly strong – Deptford in south-east London, Bow in East London and Lewisham in South London.

These three areas share common factors like proximity to central London by train, a cool scene and great night time economy, which make them appealing to young buyers. Bow has a great variety of homes and Lewisham is experiencing a massive house building programme, which will put more properties onto the market.

Properties in these three areas are outside of the reach of anyone earning less than £50,000, but they indicate the tremendous rise in demand thanks to the Stamp Duty holiday. Enquiries for properties around £500,000 have risen 50 to 75 percent since the Chancellor’s announcement.

Support from the Help to Buy scheme

With so many price variations around London and choice limited by salary levels and available deposits, it’s good news that the government has extended part of the Help to Buy scheme, which has already helped many first-time buyers make their move.

The extension of two months applies to anyone buying a new-build home with help from the scheme. Buyers require a deposit of just 5 percent and that deposit is topped by a government loan that is interest free for 5 years and covers 20 percent of the cost.

The scheme was extended to help anyone whose new build home was delayed during the lockdown. Construction must now be completed by 28th February 2021, with legal completion by 31st March 2021.

The scheme also offers a Lifetime ISA with the government contributing up to £1,000 per year to people who save £4,000 a year towards the purchase of a new home. The government’s First Homes scheme helps first-time buyers purchase a new-build home at a discount of 30 percent.

Another option in the Help to Buy scheme is known as Shared Ownership. This scheme aims to help buyers who cannot afford the mortgage on 100 percent of an existing or new-build home. Under the Shared Ownership scheme, buyers purchase a share of the home for a price that is between 25 and 75 percent of the home’s estimated value. They pay rent on the remaining share, generally to a housing association.

For London residents, this part of the scheme is available to people with an income less than £90,000.

Shared Ownership can help overcome the problem of high deposits and acquire a home that might be out of reach under other forms of financing. For example, buying 25 percent of a larger home worth £600,000 would require a deposit of just £15,000 and a mortgage to cover the remaining £135,000, which would require a salary of around £30,000.

Read more: The benefits of buying new build

Portico can help with your next move

Affordable prices in outer London boroughs, the Stamp Duty holiday and the various Help to Buy schemes can help you make your move to your first home.

At Portico we currently have a wide range of properties for sale throughout London. If you would like to find out more about homes, prices and availability in a specific area of London, please give us a call on 020 7099 4000. Click the link if you’d like an up-to-date online property valuation on your home or rental property, or get in touch if you’d like one of our experienced Sales Managers to do the valuation in person.

We already know how much your rental property is worth. Type your postcode to find out and get an online valuation within 60 seconds.

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