Buying Your First Home in London Feels Impossible? Here’s What You Can Do

If you’ve been trying to buy your first home in London, you’ve probably felt it, the quiet panic that sets in every time prices climb faster than your savings. Mortgage rates rise, wages stay still, and listings that once looked reachable now feel miles away.

It’s not just you. Data shows that London’s housing market has become one of the toughest in the world for first-time buyers, where affordability is shaped not only by demand and supply, but by deeper economic forces, from interest rate hikes to post-Brexit construction costs.

Yet understanding those forces is the first step toward taking back control. A recent academic study analysing London’s housing prices from 2014 to 2022 reveals why the market feels so unbalanced, and more importantly, what first-time buyers can actually do about it.

Research Summary

This article draws on a recent academic study by Maria Stavridou, Thomas Dimopoulos, and Martha Katafygiotoufrom Neapolis University Pafos, titled “Macroeconomic and Demographic Determinants of London Housing Prices: A Pre- and Post-Brexit Analysis” (Real Estate Journal, 2025).

The research examined how key macroeconomic and demographic factors, including interest rates, inflation, construction costs, population growth, and migration, shaped London’s housing market between 2014 and 2022, before and after Brexit.

Through a detailed multiple-regression analysis, the authors found that interest-rate changes, inflation, and construction costs were the strongest predictors of price fluctuations, while population growth had the most powerful overall impact on housing affordability, particularly for first-time buyers and those relying on mortgages.

Interestingly, cash purchases (often by foreign investors) remained more resilient to market volatility, revealing a market increasingly split between liquidity-rich investors and households struggling to enter.

In the following sections, we’ll break down what these findings mean for everyday buyers, especially those trying to purchase their first home in London, and explore how data can help turn insight into strategy.

Why London’s House Prices Refuse to Fall?

Every first-time buyer has asked it at some point: “Why don’t prices ever come down?” You wait for the crash, read the headlines, watch mortgage rates rise, yet the London housing market somehow keeps defying gravity.

According to new data from Neapolis University’s 2025 study on London property prices, this resilience isn’t luck or market manipulation. It’s the result of three powerful forces working together:

1. Population growth that fuels constant demand
2. Rising construction costs that limit the new housing supply
3. Inflation and interest-rate shifts that reshape affordability

London’s population has been one of the strongest drivers of price inflation. The study found that every 1% increase in population was linked to a 4–5% rise in house prices, a pattern that hits first-time buyers the hardest. With more people competing for fewer homes, affordability continues to erode, especially in areas close to jobs and transport.

On the supply side, construction costs have surged since Brexit due to material price inflation and labour shortages in the building sector. When it costs more to build, developers build less, keeping supply tight and prices high.

And while interest-rate hikes are meant to cool demand, they mostly hurt those who rely on mortgages. Cash-rich investors, often international buyers, remain less affected, creating an uneven playing field where liquidity, not need, determines who can buy.

In short, London’s housing prices don’t stay high by accident; they’re being held up by deep structural forces. Understanding them isn’t just about economics; it’s about seeing why so many would-be homeowners feel locked out, even when the market slows.

How Interest Rates Shape Your Buying Power

If you’re a first-time buyer in London, nothing hits harder than watching your mortgage offer shrink overnight. One month, you can afford a one-bedroom flat in Zone 3; the next, that same budget only gets you a studio with no lift. What changed? Interest rates.

The study from Neapolis University found that among all macroeconomic factors, the Bank of England’s base rate had the strongest negative impact on mortgage-backed purchases. Every increase in the base rate directly reduces what buyers can borrow, raising monthly repayments and squeezing affordability.

In simple terms:

Higher interest rates = higher monthly payments = less buying power.

For first-time buyers who depend entirely on mortgages, this means fewer options, longer saving periods, and a growing gap between income and property prices. The research showed that cash buyers, often investors or high-net-worth individuals, are far less affected by rate hikes, giving them a clear advantage in bidding wars.

 In the data, this divide was visible: while cash purchases remained stable, mortgage-backed transactions slowed sharply as borrowing costs climbed. The result? A London housing market that increasingly favours liquidity over aspiration.

How Brexit Changed Opportunities for First-Time Buyers

When Brexit first hit the headlines, many expected London’s housing market to crash. But the data tells a different story. According to the Neapolis University study, Brexit didn’t bring prices down; it reshaped them.

The research found that after the UK’s exit from the EU, labour shortages in the construction industry became one of the biggest challenges. With fewer skilled and mid-level workers available, building costs rose sharply, materials became more expensive, and new housing projects slowed. The result? Fewer new homes and higher prices for the ones that did get built.

For first-time buyers, this shift has a clear impact. New-build apartments, once seen as an easier entry point thanks to government schemes, are now often priced out of reach. But the same data reveals another side of the story: resale homes and properties in outer London or commuter towns have remained more stable, offering better value and more room to negotiate.

Brexit didn’t end London’s property dream, but it changed where opportunity lives. For many first-time buyers, that opportunity is now found just beyond the traditional city boundaries, in areas with improving transport links, growing local economies, and a slower pace of price growth.