Is London living cost affordable?

adindas

Dear =milliebear00001 and All

No, I am not working in the public sector. I am in a stable and permanent employment, earn a decent salary but still a little bit below a high tax income bracket.

While I am currently living in North West, I have got a choice of working in London with just about £3200 more that I am currently earning (for London Weighing). But I could negotiate for more probably. Working environment is not an issue as I love both places. But for life style, TBH I like to live in London as it will be closer to my friends, relatives, etc.

Do you think I should consider this offer ?.
If not, what do you think the minimum difference that I need to consider to move to London ?

Thank you for your time.

ADINDAS

milliebear00001 wrote: »

I am not sure exactly what you are asking. There are lots of places within a one hour journey of London, but many of them are still quite expensive and/or not places I'd choose to bring up my family. Certainly much more expensive than house prices where I live now. Your £3000 'weighting' (are you public sector?) would be eaten by the extra travel costs (I used to pay about £2500 pa for train and Tube, and that was nearly ten years ago.

I can only suggest you think about where you are likely to need to get to for work, then follow the train service lines out until you hit the house prices you can afford, then go and visit!

Housebear51

HAMISH_MCTAVISH wrote: »

It obviously is for the 7,000,000 or so people who live there.

Otherwise they couldn't live there.

I hear a few tens of thousands may be about to move out though, generating space for some more people who do find it affordable.;)

You are missing the point can everyone live there after the benefit cap?

Hamish do you still stand by what you said that gold and silver were going to crash? Seems like you should have said explode !

http://www.youtube.com/watch?v=iaUSysfQ_J8&feature=sub

Do you wish you had not said that they would crash all those times?

princeofpounds

I understand perfecting what opportunity cost means seeing as i studied Economics at undergrad and then did a PG in Finance at LSE!!

Good, then hopefully this will make it easier to iron out the problems in understanding the point I was making.

But still you dont make any sense, your talking about an hypothetical scenario whereby the money you apparently save fron renting you invest and make money else where...

However for 90% of people in london renting is the SAME cost as having a mortgage and you still pay bills etc.

No. YOU are talking about a hypothetical scenario of such nature. I never mentioned it. You have run with this much further than you should have done in your head. My only point was that all forms of housing cost 'dead money', because ALL have a cost, either explicit (rent, interest) or implicit (capital tied in ownership).

I never implied that they were exactly economically equivalent because that would be ridiculous. Partly because different economic circumstances provide different payoff profiles (as I mentioned before), and partly because of course you would expect home ownership to provide some additional return, simply because it requires the investment of capital!

Let me only now take you up on your scenario. You are implicitly assuming the renter does not have capital. But of course the correct scenario to consider in determining equivalence would be a renter who has capital equivalent to that tied up in the house by an outright owner. Otherwise you are just comparing a millionaire to a pauper in terms of net worth and trying to prove that the former is going to have more investment income and capital appreciation than the latter. But of course they will!

The difference then is much smaller - property rental yields are not all that dissimilar to long term rental yield on capital, as determined by the long term mortgage interest rates (remember again, a mortgage is renting the capital). Which of course is no accident. The costs of renting a property, and the costs of renting the monetary capital to invest in a property are always going to have some kind of economic relationship.

Now again, I must emphasise that they are not exactly equivalent in the real world.
- practically, because rental yields and interest rates change all the time and of course a bank always wants its lending margin so your average punter is not going to get the same economic exposure through cash returns (the closest they could get is probably an MBS I suppose).
- or theoretically because real estate also demands an economic return to cover explicit maintenance costs and the implied costs of managing it.

If for example you take out an interest and capital payment mortgage, your paying this "rent" which you will get back after selling in 5-10 years time (minus interest on loan), plus long term property prices will slowly rise again especially in lndon so this in itself is an investment. Whereas if you rent for the same period you have NOTHING to show for it...whats the opportunity forgone exactly???

Think back to economics 101. The capital payment portion of your mortgage is the opportunity forgone. It could have been invested anywhere else. That DOESN'T imply that it was a waste buying the property, because OF COURSE it produced a return. But that doesn't make the opportunity cost any less real.

A final point. You must not forget about the gearing effect, which means that the return on equity in a house for a mortgagee may be much higher (or lower for that matter, if times are deflationary!) than the equivalent monetary investment (because they are much harder to gear up) for someone who puts their capital elsewhere. This often distorts people's perception of the wealth-generating effect of property. It is also not a fair comparison to think about someone who invests a 10% deposit in a property with someone who invests the same deposits in a bank (or an MBS). Because they gear up 10x!

Entertainer

cashbackproblems wrote: »

I understand perfecting what opportunity cost means seeing as i studied Economics at undergrad and then did a PG in Finance at LSE!!

But still you dont make any sense, your talking about an hypothetical scenario whereby the money you apparently save fron renting you invest and make money else where...

However for 90% of people in london renting is the SAME cost as having a mortgage and you still pay bills etc.

If for example you take out an interest and capital payment mortgage, your paying this "rent" which you will get back after selling in 5-10 years time (minus interest on loan), plus long term property prices will slowly rise again especially in lndon so this in itself is an investment. Whereas if you rent for the same period you have NOTHING to show for it...whats the opportunity forgone exactly???

As i said i currently rent so am not being snobby by arguing about home ownership but see the benefits long term. Sure if your renting for a year or 2 to be flexible its fine.

That's for interest only isn't it? There is no saving by buying compared to renting, in mortgage interest because rental yields are so low (plus you have maintenance costs). You do of course benefit from future capital increases although at the moment prices look like they are stagnating or falling and are still overvalued. It's a good time to rent right now (again).

milliebear00001

adindas wrote: »

Dear =milliebear00001 and All

No, I am not working in the public sector. I am in a stable and permanent employment, earn a decent salary but still a little bit below a high tax income bracket.

While I am currently living in North West, I have got a choice of working in London with just about £3200 more that I am currently earning (for London Weighing). But I could negotiate for more probably. Working environment is not an issue as I love both places. But for life style, TBH I like to live in London as it will be closer to my friends, relatives, etc.

Do you think I should consider this offer ?.
If not, what do you think the minimum difference that I need to consider to move to London ?

Thank you for your time.

ADINDAS

It depends on lots of things - pasrticularly where in the North West you are living now, and what sort of property you would need to buy in order to accommodate your needs.

You would need vastly more than £3000pa London Weighting to make up the difference in cost of living though - particularly to make up for the likely large increase in housing and transport.

StevieJ

milliebear00001 wrote: »

We bought out in the sticks, did an hour and a half's commute each way. Quickly realised this was not tenable and moved 'home'. I am now the sole breadwinner, earning less than I did back then, have two children to support, and am about to purchase a bigger house than I owned before. My commute has dropped to 40 minutes and I live in a very nice town on the edge of the Peak National Park - can't understand why anyone who has a choice, wants a family and the trappings that come with that choice, would stay (and nor can my OH who was born and bred in Herts!)

Totally agree, but do me a favour, keep a lid on it

PasturesNew

adindas wrote: »

I have seen on BBC they people who are receiving a huge housing benefit living in a quite posh area in London argue:
" how could you tell 9 years children that we have to move, because we can not afford the pay the rent".

Actually, having to do that should have some positive outcomes:
- make them think more about responsibility for themselves/their family
- the kids will take on board this message and it might cause some/more of them to improve their lot so they never have to do it when they grow up.

I moved house when I was 9/10, from where I'd grown up. Lots of people do, every day. Not many people actually die because they have to move.

Mrs_Z

Yes, there's no doubt London IS expensive and I can only imagine that it must be unaffordable for young people nowdays. We were lucky to buy a small house in -96, so managed to pay off chunks off the mortgage and also climb up the career ladder during that time. I commute from zone 4/5 into zone 2, but as I can get to work without crossing zone 1, my monthly travel card is under £85. Still, we've made a conscious decision not to have kids - it just would not be practical; we're both working long hours + commute, no family near us to support us, would need to have the kid in a nursery from 7am to 6pm - what kind of life is that? So yes, London can be great but there is a price to pay - one way or another. Personally, I'd be very ready to leave and move out but (un)fortunately job is too good to leave at this point in time...

olly300

adindas wrote: »

I have seen on BBC they people who are receiving a huge housing benefit living in a quite posh area in London argue:
" how could you tell 9 years children that we have to move, because we can not afford the pay the rent".

Children need to learn at some point that they can't have everything they want and their life style is limited by the amount of money their parents have.

I remember when I was a kid some of my friends, who had younger parents, buying larger houses or their parents buying their first property. We all knew it was an achievement.

There as on the other hand I've spoken to adults whose parents lost everything in the last recession because their dad's/the family business went bust so they had to move to smaller properties, had to get rid of pets, change schools etc.

There are much worse things for a child to understand and live with than just their parents don't have enough money to live in an area.

silvercar

"..how could you tell 9 years children that we have to move, because we can not afford the pay the rent".

Children move all the time, because a parents' job relocates or because their landlord wants his home back or the parents want a bigger or smaller house.