London mortgage

Getting the right London mortgage is challenging

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Choosing the best London mortgage

There are a thousand reasons to move to London: to study, for work, to enjoy the history, culture, sights, and sounds, but whatever your reason, it’s likely to come with a considerable price tag.

Regarding the cost of living, London is the most expensive place to live in the UK, reflected by the salaries and property prices.

Getting the right London mortgage can be challenging, so engaging with an expert is essential. Alternatively, what if you’re looking for ways to free up a little extra cash to enjoy everything the city offers? Savvy homeowners and experienced brokers regularly remortgage London properties, helping you do just that.

London property prices

The average property price in London is around double that of those in Leeds, Manchester and Birmingham. According to HM Land Registry, 2021 detached properties averaged around £1 million, semis at £600k, with flats and terraced houses fetching up to half a million.

As you can imagine, tracking down a London mortgage or getting onto the property ladder can present quite a challenge.

Getting help with your London mortgage

Several government schemes are available to help buyers land a new home in the capital. With such high property prices, saving a 15% deposit equates to finding £75k for a £500k home.

Help to Buy equity loan – London

The Help to Buy London scheme provides an interest-free loan for up to 40% of the property value for the first five years, and for that, you’ll only need to find a 5% deposit. The property has to be a new build, however, and up to a maximum value of £600k.

The remainder is what you’ll need your mortgage to cover—55% of the total property value.

Once the five years interest-free term concludes, interest at 1.75% is added, increasing each year based on the retail price index (RPI) plus an additional 1%.

Shared Ownership

Another scheme that helps buyers manage the high London property prices allows them to buy a share in the property, with the option of adding to it further down the line.

It’s aimed at first-time buyers but is also available for low-income buyers who need a little extra help.

Buyers enter an agreement with a local housing association. They’ll pay into a mortgage for their share of the property and rent on the remainder. Again, shared ownership caters for smaller deposits (from 5%), and the buyer is free to sell their share at any point. If they achieve full ownership of their home and choose to sell within 21 years of the initial purchase date, they must give the housing association first refusal.

Rent to buy

Our final mention is the Rent to Buy scheme. Again, it’s designed to help buy a new build home from a housing association, where for the first five years, you’ll pay a reduced rent—about 20% below market rates—giving buyers a better chance to save a healthy deposit.

To qualify, you must earn less than £60k (alone or as joint applicants), be a first-time buyer or be a previous homeowner that can’t afford to buy on the open market.

Ownership in London – Freehold vs Leasehold

All kinds of costs come into play when buying a home; whether you’re relocating to London or moving to a new area of the capital, you’ll need to consider the types of ownership.

Freehold properties in London

Freehold purchases include the property's land and the property itself—you become the sole owner of both components. With freehold, you’re responsible for the upkeep of both and their administration costs.

The benefit is that you won’t have to pay the ground rent many London homeowners do, but the property’s purchase price is likely to be higher.

Leasehold properties in London

Leasehold is a long-term rental with the landowner. It’s often the case with many apartment blocks and flats throughout the UK. Their terms can run from 40 to 999 years, and when they expire, you must renew them at the current market rate or return the property to the original owner.

The land the property stands on and the building it caters to remain the landowner's responsibility for maintenance and management. For that, the leaseholder pays a service charge.

The benefits are that leasehold properties are usually cheaper than their freehold counterparts; you’ll save money on specific maintenance items, for example, repairs, communal area decoration, garden maintenance, etc., and you won’t have to pay buildings insurance.

Buy to let mortgages in London

Over the past few years, the number of buy-to-let mortgages provided for London properties has been falling steadily.

It could be down to the high property prices, tax changes for landlords, and increased mortgage costs. Alternatively, it could be due to the recent fall in rental demand. The COVID pandemic changed the work culture for many, with remote workers and students relocating to cheaper areas and towns.

That doesn’t mean there isn’t a market for rentals; it’s just one of the areas where we’ve seen a significant change in recent times. There are still opportunities for the savvy developer and property manager, with mortgages available to fit every bill.

In conclusion

It’s still a lot of people’s dream to live in such a wonderful and exciting city. Okay, so it comes at a cost—but for those moving in the right circles with the appropriate salaries, London mortgages are available for every type of buyer. And if your income doesn’t quite cut it, there’s help available for those who need it.

If you’re planning on moving into the capital, we’d love to help you track down your ideal London mortgage. Alternatively, if your circumstances have changed—for better or worse—our specialist advisors can remortgage London properties to find you a better deal and put a little extra cash in your pocket to enjoy the city to the fullest!

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Gemma May

Mortgage Advisor

Gemma May

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