In this brief blog, we are going to discuss “How to buy a house in London”. Buying a house in London is one of the things many Londoners aspire towards but rising house prices makes this difficult.

How to buy a house in London?

Buying a house in London can be one of the most stressful experiences. There is quite a lot of competition for houses in London as it is a city with a lot of demand. House prices in London are rising faster and faster and even with this it is still a sellers market as there are so many buyers in comparison to how many properties which are available for sale in London.

If you are looking to buy in London then here are a few things you may want to consider:

Houses next to the stations will be very competitive.

Gazumping and Gazanging are very common in London

Getting a mortgage in principle will make estate agents and sellers take you more seriously

Having proof of a mortgage deposit will make  sellers and estate agents take you seriously

Having a good mortgage broker and a good conveyancer may help reduce how long it takes for you to complete on purchasing the property

You may be able to use a government scheme in order to buy a house in London

Steps to buy a house in London

Below are some of the stepson how to buy a house in London.

Get a mortgage broker

If you are buying with a mortgage then getting a mortgage broker may be a good choice. A mortgage broker helps you find mortgage products which are suitable for you by scanning the market and letting you know what mortgage products on the market may be suitable for you based on your current circumstances. 

Mortgage brokers are relevant because they are able to search the whole mortgage market (in some cases) to find mortgage products which may be able to help you buy a house in London.In comparison, mortgage lenders are usually only able to provide advice on the mortgage products which they provide. 

A good mortgage broker will likely be fast and be able to help you get a mortgage faster.

Get a mortgage in principle

A mortgage principle is the next step on how to buy a house in London. A mortgage principle is an official letter or statement from a mortgage lender which states how much they may be willing to lend to you. A mortgage lender will provide you with a mortgage in principle based on an application which you make. This application will only require very little information and most mortgage lenders will perform a soft credit check before deciding if they can lender to you or not.

A mortgage in principle will make sellers and real estate agents take you more seriously as it shows you may be able to buy a house in London.

Make an offer on a house in London

Once you have gotten your mortgage in principle and ten found a property which you want to buy then you should make an offer on the house. The seller will let you know if they are accepting your offer and you can then go on to get a mortgage offer. 

Get a mortgage offer

To get a mortgage offer you will then need to fill in a mortgage fact find. This is a more detailed document and the mortgage lender will use this to determine your mortgage affordability and will let you know if they will be providing you with a mortgage offer or not. Having a mortgage in principle does not guarantee that a mortgage lender will provide you with a mortgage offer to buy a house in London.

Once you have gotten a mortgage offer you should also know that it isn’t a guarantee that you will end up completing the house purchase in London.

It is possible for the mortgage lender to still withdraw the mortgage offer up until when you complete on the mortgage.

Get house insurance

Once you have gotten a mortgage offer, most mortgage lenders will want you to get home insurance before you complete on the property purchase. If the property is a non-standard construction property then you may find that it costs more to insure. You may even need to use a specialist insurance broker to find insurance and even to get a mortgage offer.

Complete on a house in London

Once you have gotten your house insurance, the conveyancing process should already have started. At this stage, your conveyancer will carry out legal searches on the property to ensure everything is fine with it and you can buy it.

If everything checks out, you can exchange contracts and then complete on the house. At this stage, you have just bought a house in London.

Pay stamp duty if required

You will then need to pay stamp duty. If you are a first-time buyer you may be due for stamp duty relief.

Stamp duty can be very costly so you may want to use a stamp duty calculator to see how much stamp duty may cost you.

The cost of buying a house in London

Buying in London can be very expensive. The average house price in London is now around  £470,000 which means if you need a mortgage deposit of 5% you will need to have £23,000 saved up.  If you need a mortgage deposit of 20% then you will need a mortgage deposit of £94,000 to buy a house in London.

Aside from the mortgage deposit requirement you will need to account for fees such as the mortgage application fee: between £250 to £1,000, conveyancing fee £300 to £2,000, home insurance: £300 to £1500 and a home survey: £150 to £500.

These costs are just guidelines and the cost of getting a mortgage can be much higher depending on what service providers you find.

If you are buying a house in London with cash then you may find that it is easier and much faster as you avoid the whole mortgage process which most sellers hate.

FAQs about how to buy a house in London

Below are two of the most frequently asked questions about how to buy a house in London.

How much deposit do I need to buy a house in London?

To buy a house in London you will need an average mortgage deposit of £23,000 but this figure is rising and will differ depending on the region in London you want to buy a house in.

Most first-time buyers will take over 8 years to save their mortgage deposit before they will be able to buy a house in London. People looking to buy a house in London can pay mortgage deposits which go all the way up to £80,000. This is according to research carried out by the Nationwide Building Society.

What mortgage can I get with 20k deposit?

With a 20K deposit, you will be able to get a range of mortgages depending on what percentile of the property the 20k deposit is.

A 20k deposit will get you a £100,000 mortgage if it is a 20% mortgage deposit. A 20k deposit will also be able to get you a £400,000 mortgage if it is a 5% mortgage deposit. This may be enough to buy a house in London.

Government schemes to buy a house in London

There are lots of government schemes which may be able to help you buy a house in London, they include:

  • Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
  • Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
  • Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
  • Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
  • Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
  • Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
  • Right to buy- allows you to buy your home at a discount price.
  • Preserved right to buy- same as above.
  • Right to acquire- same as above.

Using a mortgage broker to buy a house in London

You may want to consider using an independent mortgage broker to get a mortgage for the house which you want to buy in London.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 11,000 mortgage products. This may have some advantages than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your remortgage is indeed a possibility before you make a full mortgage application. Once you have found a home you want to buy or are satisfied with the mortgage offer for your remortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer. Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it, they will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

In this brief blog, we answered the question “How to buy a house in London”. If you have any questions or comments please let us know.

John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.