London is the most talked about housing market in the UK, featuring every type of habitation imaginable and offering seemingly endless attractive price rises fuelled by the troublesome combination of limited supply and excessive demand from workers and investors alike.

However, for all the variety and excitement the market offers it is also expensive and complex. Deciding when to get involved is difficult wherever you are, requiring analysis of areas and transport links, but savvy London buyers are increasingly aware of the impact of economic prospects and interest rate expectations and trying to time their purchases.

First-time Buyers

Price rises in London have led to panic in the capital, as first-time buyers, a linchpin of the market, struggle to get their foot on the bottom rung of the ladder. Crowded open-day viewings, best-and-final offers and sealed bids have become quite the norm for all manner of properties. And new regulations on lending have kept it tough for those just getting involved. A vicious cycle appears to side with second-time buyers moving up the ladder and flush foreign investors looking to make a profit.

How much?

London house prices have risen an impressive 20% this year, around double the pace of the UK as a whole, seemingly unperturbed by the prospect of interest rates being primed to rise as the economy recovers and stricter lending guidelines for the banks to help avoid another financial crisis through irresponsible lending and a painful property market crash, especially in the politically sensitive capital .

The interest-only lower monthly payment mortgage option that helped so many buy and fuel market gains in the early 2000s is much harder to come by now without a serious deposit/equity. Banks are studying the lifestyles of new (and exiting borrowers) and evaluating the potential for changes in situation (kids on the horizon?), rising utility bills and even student loans which were ignored for so long, as well as stress-testing the impacts of big interest rate rises in order to decide the maximum that can be lent and is affordable on a higher full-repayment basis.

While a more sensible approach for the banks and lenders, putting less risk on their books, it does make financial life for buyers the hardest it has been for a generation and sees them increasingly looking to the bank of Mum & Dad and even Grandparents for support in making up for shortfalls in deposits.

Space

As mentioned, lack of supply and excessive demand is keeping prices high. Supply is limited by an already crowded London putting space at such a premium and developments making the most of what’s available by predominantly building blocks of small 1 and 2-bed flats the future of which is being called into question. Where can all these people move on up to if there are no new affordable houses?

While Government initiatives are helping buoy the market by keeping it moving it is encouraging the building of more small boxes rather than family dwellings and thus squeezing the market as we move up the chain, pushing prices even higher, something which can only but filter down towards the bottom of the ladder.

The average cost of a London property for a first-time buyer in 2013 was over £350K, and involved a chunky 3% stamp duty land tax. This bought you a two-bed ex-local authority flat in Clapham, which is a far cry from the nice terraced house vision or swanky new flat that many aspire to and required a deposit of in the region of £50K which many don’t have.

Latest data shows the average cost of a new home (all types buyers) in the capital is now over £500K breaching that magic next threshold of 5% stamp duty, making it all the more expensive for everyone involved.

Availability

Price-wise the average London home now costs 2x the UK average but as a buyer it isn’t all bad news. London’s success has presented many living there with the opportunity to move elsewhere in exchange for grander abodes. Many are opting to leave the capital and try their fortunes in other cities, making the market rife with choice. However, it is unfortunately wealthy families selling bigger dwellings and not 1-bed flats so not helping those at the bottom of the chain.

Subjective

When is the right time to buy a property in London is no easy question. It is highly subjective, depending on you and your situation. Looking at the market today, though, it is not difficult to see why so many first-time buyers do all that they can to get onboard for fear of never being able to, while those further up make the most already being onboard and being able time their moves to maximize value.