It may surprise those of you who do not live in London, but we do not all make banker salaries. Sadly we are on only marginally higher salaries than those working in other cities around the UK. Frustratingly this is not reflected in the cost of housing. It is important to point out here that all of my below figures and observations are focused on cities as it would not be a fair comparison to compare London to a village in Somerset. My husband is certainly not on a bankers salary and we have absolutely no chance of buying a house in the next 5 years at the very least. Before anyone asks, yes, this is taking into account the possibility of moving further out of London into one of the home counties within a commutable time for my husband to get to central London. We still can’t afford to buy a flat, let alone a house for our growing family.
I have put together the below chart showing the average cost of a terraced house in each of the major cities across England (statistics used only represent England, not the full UK), compared to the average salary in each of these cities. You will see that the average salary in London is only 31% higher than the national average when the average cost of a terraced house in London is 184% higher than the national average. How is this fair??
Those of us who are in the middle, as opposed to a tenant in a council house or on a bankers salary, we are royally screwed. Most local schemes are for those on a low income, which although we are not on a massive income, we are not considered to be on a low income. The government have attempted to address the housing crisis with various Help to Buy schemes, however with the ridiculous cost of housing in London, they are of little help to the average family. Below are my responses to a few of the supposed Help to Buy schemes;
Help to Buy ISA – This is actually the one policy that I agree with wherever in the UK one lives. The ISA is designed for first time buyers saving for a deposit. For every £200 saved into this specialist ISA available from most banks, the government will give a bonus of £50, up to a maximum of £3, 000.
Equity Loan – The government will lend you up to 20% of the cost of a newly built home (up to 40% in London) to be paid back either when selling the property or when re-mortgaging, so that one would only need a 5% deposit and a 75% mortgage to make up the rest.
This is great in theory but when looking at new builds in London, the cheapest 2 bedroom property (we have a daughter so has to be at least 2 bedrooms) I could find was a flat advertised from £517, 000 in Deptford. Ignoring the fact that this is a small flat without a garden in a non desirable part of London; we would have to save a deposit of £28, 850, borrow (40% of property price) £206, 800 from the government and get a mortgage of £284, 350. On one salary we would not be able to borrow this much, and many mortgage companies are not willing to supply mortgages on these schemes anyway.
So what if we look at new builds outside of London?! Using the Help to Buy East and South East website (as only certain houses are part of the scheme), the cheapest 2 bedroom property within a commutable distance for my husband is a flat (again no garden for our daughter) for £372, 750. Using the same maths as above apart from the Equity Loan being 20% as the flat is outside of London; we would need a deposit of £18, 637, borrow £74, 550 and get a mortgage of £279, 562. Again, we would not be able to get a mortgage for this much.
The scheme also does not take into account the impossibility of saving for a deposit while paying the ridiculous rents in London; according to HomeLet the average rent is £1, 472 a month, this is over 50% of the net salary (after tax and NI) of someone earning the average £34, 729 (£2, 231 a month net)
Shared Ownership – I thought that this would be a total goer. In partnership with the Local Housing Association (LHA) in the relevant area, one may purchase a percentage of a property (typically 25-75%) and pay rent to the LHA on the part that they own. The rules specify that one must be a first time buyer and have a household income of less than £80k.
It is a great way to just get a foot on the ladder. However. When looking into the scheme, pretty much every property had a rule that the person purchasing the property had to work or live in the area. Therefore all of the areas that we would like to move to and/or are of a commutable distance from my husband’s work are off of the table as an hour’s drive does not constitute as ‘local’. As we are unable to afford even a share in a property in the area that we currently live in, then this scheme is also a complete let down for the average family in London.
The question is what is going to be done about it? Everyone always says “the house market will have to crash at some point”, but I don’t think it is going to ‘crash’ enough for the average family in London to be able to buy a property in the near future. The government need to consider capping the number of properties a landlord can buy up within Greater London and a higher tax needs to levied on second homes in London. The city is also in desperate need for new homes, but where is the space and the money to do this? A policy should also be enforced where all new builds need to be purchased by people who will actually be living in the property; no buy to let and no second home. Harsh I know, but this is the only way that the average family are going to get the helping hand they need instead of just handing money to people who already have money, to make more money.
The London Mayoral Election is on 5 May. All of the candidates say that they will provide more housing but how they will do this is often not explained. I will wait with baited breath to see who will be taking on this task along with Cameron’s gang, but I sadly don’t hold out much hope.