You can live anywhere in the world - the only requirement is that you can make it to the car park in 2 hrs or less when on home standby. People have different ways to deal with this. I have just flown with a Yorkshire captain who spends his HSB days in a motorway service station 2 hrs drive from LHR. It shouldn't be too big a problem because you only do reserve one month in every 9-12 months at LHR and for only a few days in the month at LGW.
I have flown with more SH captains who live outside of london than in it, from places such as France, Spain, Ireland, Scotland. Cabin crew and LH pilots live even further afield. There is even one who lives in Sydney.