How do people afford expensive houses

theartfullodger

Of course you don't have to buy with a mortgage: Over a third of all purchases last year were for cash.. see

http://www.propertyindustryeye.com/more-than-one-third-of-homes-bought-by-cash-buyers/

chelseablue

Person_one wrote: »

Owning a house isn't everything. If I were her I definitely wouldn't regret any of that travel, that has its own value that doesn't have a monetary value. Learning to drive at a young age is pretty sensible too, and if she's only in her mid twenties she still has plenty of time ahead of her.

I agree. I passed my driving test when I was 18.
I think the sooner you drive the better in the long run as car insurance starts off high but gets cheaper over time.


My first car cost £500 but the first years insurance was £1200 :eek:


Now I'm 32 and my insurance is £300 a year

_CC_

u0362565 wrote: »

However I realise that all property in general will increase in value so you would never get nearer to your goal of a bigger house as everything moves relative to each other

Except your outstanding mortgage for a property is typically tied to the original purchase price, so general inflation will erode the real-terms value of the debt while your equity tracks the property value.

Of course the flip side to this is you're left in negative equity if the market falls.

u0362565 wrote: »

salaries on average don't change that much and you probably can't borrow much more as time goes on.

This isn't true.

People tend to earn more as they progress in their careers and reach their peak earnings in middle age.

Like for like salaries also do tend to increase over time.

moneyistooshorttomention

TBagpuss wrote: »

as others have said, its a combination of luck and hard work.
Getting married, or being in a long term, stable relationship is a massive help as youthen have two incomes but only very slightly higher outgoings.

Also, saving. I haven't been as lucky as some here. My first home, I owned for around 5 years and it sold for exactly the same as I had bought it or. however, I had started overpaying on my mortgage with the first pay rise I had after buying, so I did have a little bit of equity to put towards a deposit.

When I bought my second house ( which was much more expensive, although nio bigger, due to my having moved South!) I did the same - ioverpaid the mortgage as much and as soon as I could. I ended up in that house longer than I had originally planned due to the recession - but because I had been chipping away with overpayments I had built up more of a deposit when I moved on. The overpayments also meant that when I moved, although my actual mortgage borrowings were almost double what they were on the old house, the actual repayments didn't change, it's just that the proportion of the payment which is mortgage as opposed to overpayment is larger. And I have adjusted my budget so I can start to make iverpayments again, albeit not very large ones.

I'm not in a £400K house - but I am in a 3 bed semi with a reasonable garden in a pleasant village instead of in a 2 bed terace on a not-very-nice estate. A collague who earns the same as me but has a husband who also works has recently bought a £400K house, but I think that despite their dual income they also have more debt and less savings than I do.

All that said, I don't expect my income to increae significantly now, so unless I become half of a couple I can't see myself buying anywhere more exoensive than where I am now. (I suppose that if I were to have an inheritance or other windfall it could happen)

Oh...can I give you a hug for being fair-minded/objective enough to realise/admit all that....:)

mumps

Person_one wrote: »

Owning a house isn't everything. If I were her I definitely wouldn't regret any of that travel, that has its own value that doesn't have a monetary value. Learning to drive at a young age is pretty sensible too, and if she's only in her mid twenties she still has plenty of time ahead of her.

I don't think she regrets the travel itself but she is at that stage where if only she had another £20k, the house you really want is always just out of reach isn't it, well that is my experience. I think if she could go back she wouldn't get a car at 17 as she just ended up being the driver for a gang of friends and what she lost on the car and paid in running costs and insurance is probably £3k, I think she might look after her first laptop a bit better and the same with phones and I think she would probably have another year in shared accommodation (probably another £3k there) and spend a bit less on clothes, particularly the ones that never got worn. I think she shouldn't have spent thousands on takeaways but I don't know if she regrets that. I reckon she could have the holidays and still have an extra £10k for the house but we could all go back and do things differently and be better off in one way or another. They are in a position where they can have a nice flat in the area they would like to live in or a house in a not so nice area. I've told her not to worry as when we kick the bucket she will be OK.

clint_S

The cost of some of the house people own got me thinking what you could get for £400K and well Location seems to be everything.


North West
http://www.rightmove.co.uk/property-for-sale/property-48977908.html


North East
http://www.rightmove.co.uk/property-for-sale/property-53113600.html


Central London
http://www.rightmove.co.uk/property-for-sale/property-40334493.html


Wales
http://www.rightmove.co.uk/property-for-sale/property-54345281.html

ScorpiondeRooftrouser

I really wouldn't recommend anyone spend the years of their youth saving and not doing anything in the hope of a comfortable old age. Everything is more enjoyable when you are young. People who say it isn't just weren't doing it right.

Don't get into debt and overspend, but equally don't spend your years from 20 to 35 not holidaying, not going out and saving for a deposit. The only reason you won't regret it later is because you have no idea what you missed out on.

ScorpiondeRooftrouser

clint_S wrote: »

The cost of some of the house people own got me thinking what you could get for £400K and well Location seems to be everything.


North West
http://www.rightmove.co.uk/property-for-sale/property-48977908.html


North East
http://www.rightmove.co.uk/property-for-sale/property-53113600.html


Central London
http://www.rightmove.co.uk/property-for-sale/property-40334493.html


Wales
http://www.rightmove.co.uk/property-for-sale/property-54345281.html

I think your regional examples are a bit sweeping; you wouldn't get anything like that in Cardiff, for example. It's more "remote areas with no jobs vs. areas with lots of jobs".

That said it is clear the luckiest people are those who can find decently paying jobs in remote areas.

ukcarper

If house prices increased 5% a year a £250k house will be worth about £408k after 10 year, while a £350k house will be worth £570k. If the £250k house was bought with a 80% mortgage and 3% 25 year mortgage the buyer would have £270k of equity, meaning they would need to borrow £300k to buy bigger house.

If they had a 4x mortgage to buy £250k house they would be earning £50k so would have need a 6X mortgage on £350 house with same £50k deposit. If their wages increased 2% a year after 10 years they would be earning £60k a 5x mortgage. So with some career progression it's quite possible.

princeofpounds

- There are thousands of high paying jobs that would allow people to buy a home of over 400k as a starter home. Especially in and around London.
- Most people these days are buying on two salaries, not one, which makes it much easier to spend high amounts (indeed, large portions of the value created by women entering the workforce have gone to owners of capital rather than working families themselves, although obviously those categories are not mutually exclusive).


- Masses of people (more than you would think) also end up making tidy sums out of businesses or receiving tidy sums through inheritance or gifting. For example, I believe now a majority of FTBs get some kind of family assistance with deposits.


- The average buyer is probably older than you think (and so has spent longer saving up) - for example, typical FTBs now are well into their 30s.


BUT


that is probably less than half the story.
What you have to understand is the massive important of leverage (i.e. the role of mortgage finance) in housing transactions. The amount and pricing of mortgage finance available is actually the dominant factor in terms of the demand for housing, in monetary terms.


This expresses itself in a few ways.


For example, mortgages are now super-cheap, especially if you are happy to take interest rate risk (and in this country, most people fully are, which is a bit weird but that's another topic). Current variable mortgages rates are ~1%, which means a 400k house costs, in interest terms, just £4k a year in interest (ignoring any equity deposit). That is peanuts. Minimum wage can afford that. The rent will likely be way more. Obviously in the vast majority of cases you have repayment of the principal sum, which means it's more costly than that, but remember repaying the principal is seen more as saving than an actual expense.


Another very important issue is gearing. We have just had an unprecedented ~24 year housing boom, with just one blip around 2009. Imagine you bought a house for 110k on an interest-free mortgage (just for simplicity), with a 10k deposit and 100k mortgage back in the 90s.
The house price subsequently doubles to 220k. You then sell it and pay off your mortgage. You now have 120k (220-100). The house price has doubled, but your equity share has gone up twelve times.


You see, mortgage debt is a fixed liability, and so it amplifies your gains (and your losses) massively. This is the real driver of the so-called housing ladder.
Your second house was twice as expensive. Imagine it was 220k in the 90s and 440k now. Your initial 10k equity in the 90s would have been only a 4.5% deposit. But your 120k is now a 27% deposit. That is without making a single penny of principal repayments.
I could go into a lot more detail about how this works, there are nuances and of course the housing ladder can also be a housing snake at times, but the basic point is that pretty much anyone who has bought in the last 25 years has benefitted from this, many in such a way that their 'gamble' on housing has 'earned' more than their wages ever did.


Ultimately, the best place to be in terms of maximising housing equity is to buy when interest rates are high, house prices are low, with maximum leverage, and move to an environment where interest rates are low and house prices are high. This pretty much defines the last quarter century and is a big part of the explanation as to how many people have ended up with a lot of housing wealth, given today's prices.