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London housing market: why it's so different to the rest of the UK

Christina Jordan
by Lovemoney Staff Christina Jordan on 04 December 2012  |  Comments 7 comments

It's often said that London is essentially a separate housing market to the rest of the UK. But how true is that statement? Just what makes it different?

London housing market: why it's so different to the rest of the UK

You may have certain pre-conceived ideas about the London property market. Mine are that is has staggeringly high house prices (but then I do live in Manchester) and a large proportion of young renters, who pay extortionate amounts of money to landlords to live in pretty small flats.

Wannabe homeowners in London may assume that the cards are stacked against them, and that it’s a near impossible stretch to get onto the housing ladder in the capital.

While all of these statements are true to a large degree, two recent studies by the Council of Mortgage Lenders (CML) and Halifax have thrown up some surprising finds about homebuying in the capital, not least that London actually has the highest proportion of first-time buyers anywhere in the UK.

First-time buyer facts

It doesn’t seem logical, given that house prices are eye-wateringly expensive in London, but according to the CML Londoners account for a massive 28% of all lending to first-time buyers throughout the UK, more than anywhere else.

In fact, in the last quarter alone a significant 10,000 first-time buyers took out a mortgage to get onto the ladder in London - the highest number for almost three years.

Where are they getting their money from?

It won’t come as a massive shock to learn that London’s first-time buyers are that bit older than elsewhere in the UK – but only by two years. This extra time is crucial in helping them to save up the additional deposit money needed to buy a home in the capital, and to hopefully work their way up the income scale.

London’s first-time buyers earn an average income of £50,000 compared to £34,000 elsewhere in the UK. And although average prices are clearly much higher than the rest of the UK, average loan-to-value ratios are actually lower at 75% (compared to 80% in the rest of the UK).

What’s most interesting is that one of the major reasons first-time buyers in London can put down a larger amount upfront is not their higher incomes; it’s because a staggeringly high proportion of them get help with their deposit.

In fact, the CML estimates that a whopping 70% of first-time buyers in London get help from their parents or other relatives – notably higher than in the rest of the UK.

Perhaps Londoners are simply accustomed to higher house prices and parents accept that they need to give their children that helping hand onto the ladder.

House price hotspot

House prices in London exist in their own bubble, and they have bucked the national trend over the last five years of falling, bottoming out and then stabilising.

In London prices have not just stabilised, they have completely recovered from the post-credit crunch losses, and according to Nationwide the capital is the only UK region in which property values have now regained pre-credit crunch levels.

In June 2012, the average house price in the capital was a whopping £392,000, compared with an England average of £240,000, according to the Office for National Statistics. 

Halifax reports that London house prices are 4.7 times the average wage, the third highest price to earnings ratio in the UK, behind the South West (5.1) and the South East (4.8).

Another contradiction is that London is actually the most affordable area in the UK to buy compared to the cost of renting, which is – surprise surprise - the highest in the UK. London homeowners typically pay 14% (£177) a month less than the average London renter.

In other words, it’s super expensive whether you rent or buy, but renting is steeper. Unfortunately it’s the only choice for those without the necessary deposit to buy.

More renters, but more buyers too

It’s not surprising that the capital has a higher proportion of renters than anywhere else in the UK, even if it is very expensive indeed. In terms of its population split it has more young people than the rest of the UK, and with house prices so high, they are likely to spend some years in private rented accommodation.

Indeed, among all regions, London has the lowest rate of home-ownership (at 50%) and the greatest reliance on the private rented sector (26%). The city also has 24% of its population living in social housing, a high proportion matched elsewhere only in north east England and Scotland.

So it seems incongruous that, despite having a smaller percentage of its population in owner-occupation than any other region, London simultaneously accounts for a higher proportion of all house purchase loans advanced in the third quarter than anywhere else in the UK – 22% of the total.

The capital is so populous that it can cover both ends of the spectrum - more homebuyers than anywhere else and the highest proportion of renters.

And it’s only getting bigger. London is the fastest growing region in the UK. The 2011 census recorded its population at 8.2 million, an increase of 12% in a decade. 

There are plenty of people wanting to buy a home, and plenty of others wanting to rent one.

Problem is, there aren’t enough homes.

Mind the housing gap

Just over 20,000 new homes were built in the capital in 2011-12, but four years ago, the Greater London Authority estimated that the capital needed 32,600 new homes every year just to keep up with demand.

Clearly this supply and demand imbalance leads to higher house prices and an affordability problem. Not every wannabe homeowner will get parental support to raise a large deposit, but mortgage lenders need to balance the pressure of helping first-time buyers with the need to lend prudently.

However, despite facing huge hurdles to get onto the housing ladder, Londoners have something to smile about, as a separate study from Halifax this week shows that they typically have more disposable income than people in any other part of the UK – a massive £20,000 a year more per head – that’s 29% higher than the UK average.

Even that is still not enough for many to buy their own home without visiting the Bank of Mum and Dad. For many without that option, owning a home in the city they live in is a distant dream.

What are your experiences of buying or renting in London? Is it simply becoming unaffordable? And has it made you consider moving elsewhere?

More on buying and selling property:

What is a shared equity scheme?

What is the NewBuy scheme?

What is a shared ownership scheme?

Dealing with estate agents

How to beat Stamp Duty

What is the NewBuy scheme?

What's your property worth?

The cheapest and most expensive places to buy property

What to do when a home survey goes wrong

Threatened with repossession? What you should do

How to deal with property chain problems

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Comments (7)

  • yocoxy
    Love rating 152
    yocoxy said

    Being only the third highest income multiple, it's not so different after all is it? It seems that it's London incomes that are the real difference.

    Report on 06 December 2012  |  Love thisLove  0 loves
  • marram
    Love rating 49
    marram said

    My theory about why parents in London can give their children money to get on the housing ladder is, they must be reasonably well-off themselves to be living in London. I can't see a Cornish Fisherman being able to lend his offspring money for a London deposit.

    Forgive my cynicism, but I think it's just a case of well-off parents making sure they are rearing soon-to-be-well-off-kids.

    The only poorer people who can afford to live in London are the Council or Housing Association Tenants who pay little or no rent because they're on benefits.

    Quite honestly, I can't see the point of this article. We all know houses in London are too expensive for the average person. Imagine writing an entire article on the subject 'grass is green'.

    Report on 06 December 2012  |  Love thisLove  0 loves
  • alexms
    Love rating 8
    alexms said

    I had to leave to have a family. But come the benefits cap in April and the presumed resultant fire-sale of low-to-middle rank family type properties currently privately-rented to councils, I hope I will be able to afford to move back. This will cut my commute, saving on time and travel and improving my family's quality of life.

    I really don't think people have understood the scale of what is going to happen to the housing market, especially in London, from April. ...Unless the Coalition caves in, and somehow I don't think it will; there's too much money and reputational risk at stake, and this ultimately stands to benefit both parties electorally.

    I don't know how long a typical eviction process takes and of course I don't know what will happen but come the summer I suppose the properties will be coming to market, especially some renovation opportunities.

    God knows what will happen to the occupants - perhaps they really will all move (be moved) up north, where I hear there are whole streets just abandoned. At least their cost of living will come down. Tough love, but a shake-up might be what the evacuees need, as well as letting fresh energy into London, deflating the housing market and saving the government a fortune.

    The big losers will be the landlords, but I don't hear a great deal of sympathy votes for them...

    Report on 06 December 2012  |  Love thisLove  0 loves
  • Mike10613
    Love rating 626
    Mike10613 said

    It would ease the London Housing crisis if instead of moving ordinary people out of London to preserve it for the financial sector and their wealthy supporters; they could move the wealth out instead. The Bank of England could move to Birmingham, the royals could have a house in Liverpool, the stock market could be relocated in Newcastle... We could have bankers abandoning their lattes at tax avoiding Starbucks in favour of a Balti in Brum... ;)

    Report on 06 December 2012  |  Love thisLove  1 love
  • meldrewreborn
    Love rating 70
    meldrewreborn said

    Salaries are higher in london, but perhaps other living costs are not. So perhaps people in london can afford to put a higher proportion of their overall pay towards their housing.

    The big problem with social housing is that once people are in it, they don't tend to leave it - whatever their change in circumstances. What I fail to understand is why social housing costs rents are kept low for those who live there, while others in the rented sector pay higher levels of rent supported by housing benefit. Its because the social housing costs are so low, even after benefits are taken into account that people will not in general leave them.

    London is a particular problem because of net immigration, statospheric incomes for some and being seen as a safe haven for wealthy foreign nationals - even 7% stamp duty isn't putting them off. In london you have to build upwards rather than outwards - there isn't much easily developed land left. And the requirement (now temporarily suspended) placed on developers to provide a significant proportion of social housing in their plan added to the retail cost of the properties and reduced affordability.

    Report on 06 December 2012  |  Love thisLove  1 love
  • Batesieboy
    Love rating 0
    Batesieboy said

    @Alexms...when your "firesale" happens, the landlords that you think are losers will be in there with their cash to snap up the best ones!! I think you will be the loser...again!

    Report on 07 December 2012  |  Love thisLove  0 loves
  • wiliamson
    Love rating 4
    wiliamson said

    I lived in London until last year. My accommodation was a bedsit converted into a flat by putting a wall down the middle, so that we ended up living in a room the size of a small bathroom. total annual accommodation costs - rent, rates and standing charge on the electric meter came to £9400 pa. The bedsit was on a main road where the traffic never stopped. When the owners of the Portugues cafe downstairs moved out they were replaced by people attempting to run an all night disco, the loud music started at 6pm and ran at least until 2am, sometimes 4am or 6am, six nights a week. The flat above which was empty when we moved in became occupied by the noise pest from hell, who banged and clattered constantly. You can block out continuous noise to some extent, but not continuous but intermittent percussive noise. My income was just above minimum wage. My husband got cancer and then was living on a pension. Our rental wiped out 100% of either my husbands monthly income, or mine. We have moved to Yorkshire, where living costs are lower, quality of accommodation and environment is a million percent better.

    Report on 12 December 2012  |  Love thisLove  0 loves

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