Is it really that hard?

Generali

danothy wrote: »

Running those numbers it seems that it'd be five times harder now to save the deposit and almost three times as much of the take home each month on the mortgage payment. I wouldn't like to comment on if it is 'that hard' now, but it does look 'that easy' in the forty year ago example.

-40 years
Wage: £2,800.00
Take home: £176.05
House value: £5,000.00
5% deposit: £250.00
Rate: 6%
Mortgage payment: £30.65
Saving 50% of take home: £88.03
Months to save deposit: 3
% of take home on mortgage: 17.41%

Now
Wage: £28,000.00
Take home: £1,760.50
House value: £250,000.00
5% deposit: £12,500.00
Rate: 0.5%
Mortgage payment: £842.35
Saving 50% of take home: £880.25
Months to save deposit: 15
% of take home on mortgage: 47.85%

In addition, the mortgage rate our fictional friend would have would be considerably above 0.5% and the OP has had 40 years of pay rises to get to where (s)he is now. Some, plenty in fact, will be inflation but presumably at some point in the last 40 years she's gotten better at her job and so taken on more responsibility or had some kind of seniority pay rise too.

This is the sort of thing you'd get for £280k these days:

http://www.propertywide.co.uk/buy/property/2-bedroom-maisonette-in-croydon,cr0-ref-3373978/

A two bed flat 10 minutes from the station in the dodgy end of Croydon. Looks like a nice enough place though and certainly somewhere you could have a baby. The train gets you to Victoria in 23 or 33 minutes depending which train you get which doesn't strike me as an unreasonable commute.

lisyloo

I don't think a graduate would get a mortgage at 9.5 times income.
Also excluded is any transaction costs - stamp duty, mortgage fees, legal fees, survey, removals, essential furnishings e.g. bedroom curtains to sleep.

Cornucopia

lisyloo wrote: »

Really?
I'm looking at poky flats in London and anything below £300K is in a not-so-nice aera. To give you an example there are sub £300K flats on Falcon Rd near Clapham Junction station in a "gated community" (q. why do you need locked gates?)

Yes, but South West London has some of the most expensive suburban property in the World.

Can you give us an example of which flats and which graduate salaries you are talking about?

What do you mean by London? Croydon or Clapham? Makes a big difference.

Leafy Blackheath. 2 mins walk from Greenwich Park.

Ah, just like this: http://www.rightmove.co.uk/property-for-sale/property-47321521.html



In fact, I lived on the ground floor of that very block.

When I bought it in 1988, I paid £52k, and my salary was £11500 - so I had help with the deposit, and lived there for 8 years (way too long, but I was stuck in negative equity, and eventually bought that out in order to move).

That flat is now £180k, which places a 4x salary graduate on £40k-ish, assuming similar help with a deposit.

Taking mortgage rates into account, ISTR paying around 7.5%-8.5%, so interest only would have been £287pm (or 2.5% of salary).

Now, someone might be paying £462pm (or 1.6% of a £29k salary). Yes, I know you cannot easily get Interest-only mortgages these days.

cells

danothy wrote: »

Running those numbers it seems that it'd be five times harder now to save the deposit and almost three times as much of the take home each month on the mortgage payment. I wouldn't like to comment on if it is 'that hard' now, but it does look 'that easy' in the forty year ago example.

-40 years
Wage: £2,800.00
Take home: £176.05
House value: £5,000.00
5% deposit: £250.00
Rate: 6%
Mortgage payment: £30.65
Saving 50% of take home: £88.03
Months to save deposit: 3
% of take home on mortgage: 17.41%

Now
Wage: £28,000.00
Take home: £1,760.50
House value: £250,000.00
5% deposit: £12,500.00
Rate: 0.5%
Mortgage payment: £842.35
Saving 50% of take home: £880.25
Months to save deposit: 15
% of take home on mortgage: 47.85%

also he said 40 years later HIS salary is £28k that is with 40 years experience, it would be more fair to use the same comparable wage for someone new entering the same job which is most likely a good deal lower than someone with 40 years experience

cells

Cornucopia wrote: »

Yes, but South West London has some of the most expensive suburban property in the World.


Leafy Blackheath. 2 mins walk from Greenwich Park.

Ah, just like this: http://www.rightmove.co.uk/property-for-sale/property-47321521.html



In fact, I lived on the ground floor of that very block.

£180k for a studio flat is not cheap, plus there will be a service charge....

but maybe most important of all, you probably cant get a mortgage on such a small room. There is a limit to the size of homes where lenders wont lend and if i recall correctly it is 30 sqm and that flat is below that

Cornucopia

Really? I got a mortgage on it without any problems at all. And that was back when 3x, not 4x salary was the norm. IIRC, mine was officially 33 sq m, so probably just above the lenders' problem level.

I also bought a studio in another part of London in 2007 with a mortgage, and sold it this year. That was also larger than 30 sq m, though.

And BTW, I never said it was cheap. It wasn't cheap when I bought it, and it isn't cheap now. It was affordable then, and I suspect that it probably still is.

edit: A couple more thoughts: I probably wouldn't ever buy a conversion studio flat. When you don't have much space, you need what you have to be well-designed, which conversions often aren't.

Also, by buying what and when I did, I avoided renting. This probably saved me a significant amount of money, even after the issue of negative equity.

Maelwys

One (young?) man's experience...

I graduated with a 2-1 in a Computing Science Hons degree in Summer 2004 and took a gap year whilst looking for jobs, so I pretty much entered the job market exactly 10 years ago in Spring 2005.

1. My first job was temporary contract stuff for BT (driving around NI doing computer installations) which was minimum wage + mileage claims. That lasted 2 years.

2. My second job was as a Computer Technician in a Secondary School, earning about £13.5k a year but commuting by car for at least 2 hours a day. That lasted another 2-and-a-half years.

3. My third (and current) job is as a Systems Engineer with reasonable levels of pay (currently 5-and-a-half years here, progressing from £25-30k and it'll cap out at about £32k).


Financially, I basically had to stay living with my parents for the first job and saved my wages each month. By the second job, I was paying 'rent' of a few hundred pounds a month and still saving. I bought one second-hand car for £7k (which I still drive 7 years later) but no other big outgoings.

Immediately after graduating I had maybe £2-3k in the bank, plus student loan debts of about £6k. When starting that third job I had about £15k in the bank and about £5k of Student loan debts.

After working for a little shy of two years at that third job I'd managed to save around £30k, which got me a reasonable deposit on a nice semi-detached £128k house that was only 3 miles from where I work (saving a small fortune on petrol!). Last year I finally paid off my student loan completely.


Basically, 6 years after graduating I was in a position to be able to afford a mortgage, and I'm currently another 4 years down the line sitting on a mortgage of about £91k (at just under 2.4%) with no student loan and making regular payments into the NHS pension plan. I've savings of around £10k in the bank (earning 2.4% interest after tax) and about £400-£600 left of my wages each month getting added onto that.

The only thing my original broker insisted upon was that I keep the critical illness and decreasing-term-life-insurance up until the mortgage is fully paid off (which seems a sensible enough precaution to me).

My mortgage's fixed deal is up again in August, and I ought to be able to switch to another 2 year fixed deal at 1.7% without spending much extra (I'm currently debating whether it's more cost effective to spend an extra £6.5k getting that down to a 1.5% fixed deal - It'd save me about £590 over the two years but would mean I'd need to put off getting a new bathroom for a while...) so I should be set for the next few years, even if the girlfriend ends up becoming a fiancee ...


My younger brother, on the other hand, is technically more educated than me (PHD) but has much higher student loan debts (hurrah for top up fees!) plus a mortgage, a spouse and a kid on the way... and no permanent job!

lippy1923

No, it's not really that hard if people apply themselves and work for it.

Although I am finding from people I know personally, the ones who didn't go to uni and went straight to full time work at 18 were the ones who saved the most % relative to their income and complained the least about "how hard it is to save x of an income every month"

Generali

Cornucopia wrote: »

Yes, but South West London has some of the most expensive suburban property in the World.


Leafy Blackheath. 2 mins walk from Greenwich Park.

Ah, just like this: http://www.rightmove.co.uk/property-for-sale/property-47321521.html



In fact, I lived on the ground floor of that very block.

When I bought it in 1988, I paid £52k, and my salary was £11500 - so I had help with the deposit, and lived there for 8 years (way too long, but I was stuck in negative equity, and eventually bought that out in order to move).

That flat is now £180k, which places a 4x salary graduate on £40k-ish, assuming similar help with a deposit.

Taking mortgage rates into account, ISTR paying around 7.5%-8.5%, so interest only would have been £287pm (or 2.5% of salary).

Now, someone might be paying £462pm (or 1.6% of a £29k salary). Yes, I know you cannot easily get Interest-only mortgages these days.

Do grads actually earn £40k? As half of kids are now going to Uni it seems pretty unlikely that many of them are earning about 50% above the median household income.

I can think of a couple of ways that you could walk out of Uni (with a maths/IT PhD) into a job earning a solid 6 figure sum but there are probably fewer than 100 jobs like that worldwide.

Cornucopia

Who's talking about 6-figure salaries?

As I showed, the actual interest cost of the required mortgage would be less now, as a proportion of a reasonable London-based graduate salary of £29k, than it was for me.

Or work the figures round the other way, and a graduate now would only need to be earning £18500 to match my 2.5% of salary. They would obviously fail salary multiple on that basis, though.

Bear in mind, also, that when I went to college, I was one of about 5% who did. Therefore my graduate salary ought to be set in parallel to the top 20% of graduate salaries now.

Whatever way you cut it (and I know how desperately some FMs want it not to be true - though not why) this particular flat looks nearly as affordable to a good London graduate now as it did when I owned it 25 years ago.

The question is what a person's next step would be (as it was for me). Trading up to a 2-bedroom flat in that area was not feasible for me, unless I took on an absolute wreck, and I suspect the situation is probably worse now. I moved to the other side of London, for a new build, but I doubt that would be feasible now, either.

I suspect the next step for someone at, say, graduation + 5 years would be to move out some way, still in SE London, though. And, indeed, when I used to work in Central London, a significant proportion of my colleagues lived in the SE London suburbs.