How Much Can I Borrow For A Mortgage In London

Podcast approved by The Openwork Partnership on 12/09/2024.

How do I get a mortgage in London? Does the criteria differ from the rest of the country?

Getting a mortgage in London follows a similar process to that of the rest of the UK. A lender won’t apply different criteria to that you’d find anywhere else. 

It’s good to bear in mind that the London property market can be quite different from elsewhere – and it’s typically highly competitive. Having everything prepared so that you’re able to move quickly could often be to your advantage.

How much can I borrow for a mortgage in London?

The amount you could borrow will depend on your affordability, the same as if you were purchasing anywhere in the country. There’s a standard assessment of your income and any fixed outgoings you might have, as well as the deposit you’re going to put down on the purchase. These are all things that are going to determine how much you could borrow.

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

As a general rule, the minimum deposit is 5%, although a small number of lenders could actually offer a mortgage with less than this, if you meet their specific requirements. 

With a 5% deposit, there are a good few lenders you could look at. And if you’re able to contribute 10% or more, you’ll have a wide range of options available to you.

How is affordability calculated for a mortgage? 

There are a few key things lenders will consider when determining your affordability. They’ll look at your income balanced against any fixed outgoings like credit card balances, car purchase agreements, personal loans, student loans and deductions on pay slips, just as a few examples. 

Also, there’s one consideration that can be particular to London and is sometimes forgotten about until you find a property – that’s service charges and ground rent. These are typical for leasehold property and are paid on a monthly basis. A lot of purchases in London will be leasehold, with these fixed outgoings on a monthly basis. 

Service charges could range from next to nothing to hundreds of pounds a month. This can have a big impact on how much you could afford, and therefore how much you could borrow.

Your own individual credit score may have an impact. A higher credit score may allow you to get a higher loan or put down less deposit, which may be restricted where the score doesn’t meet a lender’s criteria. 

Often lenders are willing to offer higher loan amounts to people putting down larger deposits. A key element to consider as well is the overall loan term over which you’re taking the mortgage. With a shorter loan term, generally, the monthly cost will be higher, and a lender may determine that you can’t afford that much. 

On a longer mortgage term, the lower the monthly cost, so you may fit for borrowing on a longer term that you might not get on a shorter term.

Can I buy a house in London with a £30k deposit?

Yes, you could. Obviously, it would depend on how much borrowing you’re looking for, taking into account the things I mentioned before. We could say that £30,000 is a 5% or 10% deposit, in which case there are likely to be London properties that are available to you for, say, £600,000 or £300,000.

A big part of that is where in London you’d like to be living. Maybe not everywhere is accessible, but there are certainly properties that you would find available.

What if I have bad credit? How does this affect how much I can borrow for a mortgage in London?

Credit score is a bit of an unknown, because there’s no guide that if your credit is X you could borrow Y. Each lender has their own appetite to risk and their own approach to credit scoring, and that could have a big impact on how much you’re able to borrow. 

If you have bad credit and the lender is happy to offer you a mortgage, they may require a larger deposit to offset the risk from their perspective. Depending on how much deposit you have, that may have an impact on how much you could borrow. 

How does the remortgage process differ? Are there higher remortgage rates in London?

It’s the same as when you’re purchasing a property, whether your property is in London or elsewhere, the process and the rates offered will be the same.

How much is stamp duty in London? Are there any other costs or differences involved here?

Stamp duty costs don’t vary nationwide. These are standard. The only other cost that really does have a big impact when buying in London, and could come as a bit of a surprise, is those service charges. 

I’d always advise that if you’ve run all your checks and you’ve got your mortgage pre approved with an Agreement in Principle, check in with a mortgage broker. Make sure that once you’ve found a property, the service charge commitment isn’t going to make that borrowing amount inaccessible to you now.

It’s not something you would want to discover later on down the line in the purchase process. It’s always something to confirm early.

How can a mortgage broker help me when seeking a mortgage in London?

We’re able to look across the breadth of the market to ensure you find the correct solution and mortgage to meet your needs. Understanding affordability, borrowing, different deposit amounts and varying credit scores can be a minefield. 

That’s what we’re here to do. We’ll know who might be the right option for you with all of these factors taken into consideration.

I’ve mentioned leasehold property a few times so far, but it does have a big impact in London. Some lenders would require certain minimum deposit levels on leasehold property, and some require a minimum period outstanding on the lease, either at the point of application or at the end of the mortgage term you’re taking. 

These are all things you can’t be expected to know. If you’re trying to shop around yourself, it’s incredibly challenging. A broker is here to offer you that guidance, match you with an appropriate lender for the property that you’re going for, and ensure you could see that purchase through.

Approved by The Openwork Partnership on 12/09/2024.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. 

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU REMORTGAGE.