The London property market and how to navigate it

If you were trying to rent a room or a flat in London recently, you have found yourself in a perfect storm https://www.theguardian.com/money/2...d-unscrupulous-landlords-are-breaking-tenants of lots of pent-up demand (read: people returning to London after Covid), higher mortgage rates for landlords and well-intended legislation https://www.gov.uk/government/news/government-to-deliver-new-deal-for-renters driving the worst bits of property off the market.

So why not buy a property? You might have read the news about a seven square meter flat on the market https://www.theguardian.com/uk-news...est-microflat-sells-for-80-above-asking-price but it might be something slightly bigger than that. Having a place of your own will solve the issues renters are facing for you. There might be a correction in the housing market coming https://www.ft.com/content/be11c70b-cc3d-418f-999f-74ac218051ee, so you could be in for a bargain. There have been long debates if there is a housing bubble in London or not. Although an interesting discussion to be had (and potentially worth another post), the answer does not matter much if you are looking for a place to live.

One of the main reasons for consistent high prices in London is high demand and low supply. The city can't expand much because of regulations protecting the Green Belt https://en.wikipedia.org/wiki/Metropolitan_Green_Belt , lots of historic buildings and landmarks, high-rises being not very popular or simply impossible to build because the soil is quite soft and marshy. Yet, London’s population has grown from 7.5m at the turn of the century to 9m today https://data.london.gov.uk/dataset/londons-population - raising demand meets a housing supply that does not keep up with it. Much of the new homes are also completed in the East of London and outer boroughs which does not necessarily work for everyone https://www.savills.co.uk/research_articles/229130/332950-0

Solving this conundrum will be difficult politically, but is badly needed: a massive reduction in house prices would make them more affordable to a wider audience, but also destroy personal wealth of current homeowners. Keeping prices at current levels excludes a large part of the population - 85-90% of employees can't afford the downpayment for an average London property, unless they get help from their families. This in turn does not bode well for social mobility - you can only buy property if your parents are rich.
You might have seen that mortgage rates have gone up recently in line (or probably even more) with recent rates in interest rates https://www.uswitch.com/mortgages/uk-mortgage-rates-today/ - this dampens price levels as buyers need to pay more for your mortgage and can spend less on property.

So, where to start if you want to buy a property? Browse sites like https://www.zoopla.co.uk/ to get an idea of price levels or what is available in the areas that interest you. Make a list of things that are important to you, both for the location, but also the property itself (access to a garden or green spaces, schools in the surroundings, good transport links, a separate room to work from home etc.) and then prioritise these. Be aware that these might change – if you have kids, you might not look for easy access to clubs anymore.
Then flip the search around and look at what you could afford by using online calculators like https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/ or https://www.which.co.uk/money/mortg...mortgage/how-much-can-you-borrow-aUysL0V7VCXK After that you will encounter the biggest bugbear of all – the downpayment. UK banks will require (at least) 10-20% of the total purchase price as a downpayment. Not that much different to other countries, but London’s property prices mean that the average downpayment in London is now close to £150k https://www.ft.com/content/fd29c715-8d12-459c-980e-11b58a4a374c so you face a decade (or more) of saving a large chunk of your income. Note that UK mortgage lenders will usually not lend more than 4,5 times your income. Part of the solution to that could be to buy a smaller place at the beginning – you might have come across the term “housing ladder” to build up equity, although that concept will not really work if prices raise at the same rate across the market https://www.ft.com/content/5c49931e-9ddd-3db3-8a67-3fc2bc18f0d2

Once you have a rough idea what you want to buy, for how much and where, you can start the process in earnest. First, you need to get your personal finance in order. Budgeting https://www.canarywharfian.co.uk/th...versity-students-and-young-professionals.708/ will probably have helped you to save enough for the deposit, but now you should have a good look at (because your mortgage provider will):

• Existing debt – anything that you can pay off before applying?
• Your credit history – if you want to build up a good credit history and have some time, you could use a credit card with a monthly direct debit, so all debt gets paid immediately
• Your current income – is there a chance to increase your income? A salary raise will help you with getting a bigger mortgage as it increases your regular income, a side job will help you with your mortgage payments (or give you a little extra financial breathing space), a one-off gig (or a bonus) will help to cover other costs like solicitor fees, mortgage fees and removals costs.
• Should you have any County Court Judgments (CCJs) against you or have been declared bankrupt in the past, tackle this immediately
• Do you qualify for affordable home ownership schemes like Help to Buy https://www.gov.uk/affordable-home-ownership-schemes

You will then speak to one or several mortgage providers or mortgage brokers who will give you an estimate bout mortgage sums and rates. If you are in a good position to borrow, you could get an agreement in principle (basically saying that you can finance a sum of X, subject to a more detailed assessment). This is a very strong signal towards sellers and estate agents as it means that you have the money required and that you can move quickly if needed.
Look for a solicitor and probably also a surveyor early on as you might need them quickly (and they tend to be busy) and then start searching. Should you have narrowed down your search, be inquisitive:

• How many previous owners did the property have?
• How long has it been on the market? What is the level of interest so far?
• Is it a freehold or a leasehold https://www.moneyhelper.org.uk/en/homes/buying-a-home/leasehold-vs-freehold-whats-the-difference
• When do the current owners want to move out? Have they found something new? Ideally, the property would be chain-free https://en.wikipedia.org/wiki/Chain-free_property i.e. not dependent on others selling their property or moving out
• Has there been any structural damage in the past?
• What were the last repairs needed? How much did they cost?
• What is the energy efficiency class of the property?
• How old are appliances like the boiler, kitchen equipment etc.? It might sound trivial, but this can easily amount to thousands of pounds on top of the purchase price

The asking price mentioned is usually not the final price agreed (unless the property is really popular) - you will probably end up some 10% below it https://www.showhouse.co.uk/news/london-property-sales-see-6-increase-in-asking-price/ You will then need to get your mortgage confirmed. It helps to be quick as it is a bit of Wild West until the point when you exchange contracts https://www.theadvisory.co.uk/conveyancing/exchange-and-completion/ the seller might ask for a higher price or another bidder might muscle in., but after that you are safe and there are only a few formalities to be finished. Congratulation to your new home.

Article source: https://article-realm.com/article/Finance/39521-The-London-property-market-and-how-to-navigate-it.html