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How is anyone supposed to buy a house in London? Watch

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    (Original post by Ladbants)
    http://www.rightmove.co.uk/property-...-69008384.html

    a 2 bedroom house in Croydon, a far-flung suburb with one of the worst reputations out of all the London neighbourhoods, is £400000

    And to be eligible for a mortgage of £360000 you typically need to have an income of 1/4 of that, i.e. £90000 a year. At least that's what I've read. That means no one but the top 2% can afford even a tiny suburban terraced house, surely that can't be right?
    Croydon isn't exactly St James's but it's far from the worst end of the London property market. The BoxPark is pretty cool and the transport links are very good for south of the river.

    I don't see why you would expect a single person on a not-particularly-high income to be able to afford a terraced house to themselves in London. By British housing standards, I certainly wouldn't say that's tiny either.

    (Original post by yudothis)
    Couples and older people that have saved more than £40k to put down. E.g. imagine you save £5k a year on average, for 20 years. That is £100k. If you start work at 21, you will be 41 when you have that.
    Save more.

    When I was saving for a mortgage, albeit sharing the rent on a quite expensive one-bed with a partner, I was putting away at least £1,000 a month while living in London.

    You just have to live relatively frugally: but if you can afford the repayments on a mortgage on a £400,000 house anyway then you are already earning enough to do that. With a partner, you're then talking about a couple of years, reasonably, to build up that sort of deposit. Without one, it'd likely be a bit longer: but saving £5k a year is pretty poor really.

    (Original post by ByEeek)
    What I don't understand is why that couple chooses to live in a shoe box in Croyden with the joyful commute into London when they could live in a large 5+ bed detached castle for the same money elsewhere.
    Because the sort of places where you can buy a five bed detached house for £400,000 aren't typically the sort of places where £45,000 a year jobs are easy to come by for young professionals. That's really where the comparison falls down.

    Plus, even if you could find such a job, who wants to live in Little *****ington-on-Tyne, where the extent of the local culture is singing rude songs in the working men's club, the nearest thing to a wine bar is a bottle of Lambrini on a park bench and the only viable nighttime activity is attending a swingers' party where you end up shagging the next door neighbour's below-par wife while wishing you'd just stayed and watched a comedy panel show instead.
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    (Original post by L i b)
    Save more.

    When I was saving for a mortgage, albeit sharing the rent on a quite expensive one-bed with a partner, I was putting away at least £1,000 a month while living in London.

    You just have to live relatively frugally: but if you can afford the repayments on a mortgage on a £400,000 house anyway then you are already earning enough to do that. With a partner, you're then talking about a couple of years, reasonably, to build up that sort of deposit. Without one, it'd likely be a bit longer: but saving £5k a year is pretty poor really.
    I was being very conservative with my savings, as in that really is something wholly achievable by anyone with a grad job in London.

    Of course I was also not talking about myself
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    (Original post by Ladbants)
    http://www.rightmove.co.uk/property-...-69008384.html

    a 2 bedroom house in Croydon, a far-flung suburb with one of the worst reputations out of all the London neighbourhoods, is £400000

    And to be eligible for a mortgage of £360000 you typically need to have an income of 1/4 of that, i.e. £90000 a year. At least that's what I've read. That means no one but the top 2% can afford even a tiny suburban terraced house, surely that can't be right?
    You wait till the bubble bursts and house prices plummet
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    Prices need to fall.

    BofE should just hike interest rates a good whack. That'd sort it out.

    Edit: If I were really putting my tin-foil hat on, I'd say current house prices are the result of a conspiracy where successive governments have pandered to older, affluent, homeowning voters (at the expense of everyone else) by pursuing policies which prop up house prices. Even their 'solutions' like help to buy just add more fuel to the fire. Prices relative to rents are about 50% too high relative to what most places in the world would regard as normal levels. Young people will never be able to afford homes until we have a serious market correction.
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    You can't buy a house
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    (Original post by yudothis)
    I was being very conservative with my savings, as in that really is something wholly achievable by anyone with a grad job in London.

    Of course I was also not talking about myself
    Well, let's face it, you're not going to be able to afford the repayments on that £400k house on an income less than about £45k each for a couple. You'll be earning a bit under £3k a month after tax. Even if you're paying something like £1500 a month on rent, that's only £750 each.

    Realistically, most graduates at entry level do not earn close to £45,000, but I'd question how realistic people see buying a house in your early 20s as.
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    (Original post by Rinsed)
    Prices need to fall.

    BofE should just hike interest rates a good whack. That'd sort it out.
    But of course then restricts the mortgage levels people can obtain if repayments go up, so the trade-off is that the outcome may well lead to mortgages being less affordable even if house prices fall.

    Edit: If I were really putting my tin-foil hat on, I'd say current house prices are the result of a conspiracy where successive governments have pandered to older, affluent, homeowning voters (at the expense of everyone else) by pursuing policies which prop up house prices. Even their 'solutions' like help to buy just add more fuel to the fire. Prices relative to rents are about 50% too high relative to what most places in the world would regard as normal levels. Young people will never be able to afford homes until we have a serious market correction.
    There's some truth in that. There's also a wish to avoid mortgage-holders going into negative equity or having their rates rise too much.

    But one key point is planning law in this country restricting supply artificially. That also appeals to the existing homeowners, who largely don't want a new housing estate built behind their house.
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    (Original post by L i b)
    But of course then restricts the mortgage levels people can obtain if repayments go up, so the trade-off is that the outcome may well lead to mortgages being less affordable even if house prices fall.
    No, you're seeking a lower mortgage for the same house, so new buyers would still end up quids in.

    Also, it's much easier to save a decent proportion of the price when the market is lower, and of course you get better income on those savings in the meantime.

    Obviously, this wouldn't mean that suddenly everyone who wanted a house could suddenly get one. But low interest rates inflate asset prices and the current situation where relatively well paid youngsters are paying staggering amounts for homes (to older people who probably bought them on a much more modest income) is a huge transfer of wealth from the young to the old. As much as I dislike the intergenerational warfare schtick, it's unsustainable.

    There's some truth in that. There's also a wish to avoid mortgage-holders going into negative equity or having their rates rise too much.

    But one key point is planning law in this country restricting supply artificially. That also appeals to the existing homeowners, who largely don't want a new housing estate built behind their house.
    You're right that it would be painful for a lot of people. They've seen prices rise and rise and have been encouraged to invest all their savings in the housing market. But this is what happens when governments interfere in the market, and the price we're paying is that young people can no longer afford to buy. If you don't believe that's a sustainable situation, a correction has to come at some point. And the further down the road it comes the more painful it will be.

    The supply side of the equation isn't unimportant, but we would have to build a huge number of houses to bring down the general cost too much, and politically I can't see that happening to anywhere near the level needed. As you note people have proven to be very resistant to anything which brings down the value of their home.
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    (Original post by L i b)
    Because the sort of places where you can buy a five bed detached house for £400,000 aren't typically the sort of places where £45,000 a year jobs are easy to come by for young professionals. That's really where the comparison falls down.
    Fair enough. But for £230k we bought a very nice 4 bed house in a leafy suburb of Manchester. We have an £700 a month mortgage on that which has allowed us both to step down from high paid stressful jobs and pursue careers that better match our desires. Can you buy anything near London for £230k? I find it amusing to see the look on people's faces in Location Location Location when they walk into a basement 1 bed flat on the market for £400k and say how wonderful they think it is.... reality check!!!
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    They're NOT, that's the point. London is overpopulated. If you want a house, move out of London.
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    Seriously, Londoners are effectively lowering their life expectancy by living in an over populated and over polluted city for the sake of "muh skyscraper"???
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    IKR 400k for some cramped little terraced house. with that money you could buy a fully detached, very spacious house in scotland
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    rent, live with parents forever, house share with several people or get some wealthy person to buy you a place. or get a council house
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    Given that London has a rental rate of around 70% (the country as a whole is about 40%) it would appear that most cannot. Generally though the answer is that you buy later as a couple and with a larger deposit.
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    Have you tried inheriting your nans 2bed London terrace that she bought for £20k and renting it out for £3k a month ?
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    (Original post by Rinsed)
    No, you're seeking a lower mortgage for the same house, so new buyers would still end up quids in.

    Also, it's much easier to save a decent proportion of the price when the market is lower, and of course you get better income on those savings in the meantime.

    Obviously, this wouldn't mean that suddenly everyone who wanted a house could suddenly get one. But low interest rates inflate asset prices and the current situation where relatively well paid youngsters are paying staggering amounts for homes (to older people who probably bought them on a much more modest income) is a huge transfer of wealth from the young to the old. As much as I dislike the intergenerational warfare schtick, it's unsustainable.
    Yes, a lower value property can help you save up a deposit, but even if a £300,000 house drops to £200,000 in value, increasing interest rates will still make it unaffordable if the net effect is an increase in monthly repayments: that can completely wipe-out any benefit of the lower house value - and indeed you might end up paying back more overall even if the property's sale price is lower.

    You're right that it would be painful for a lot of people. They've seen prices rise and rise and have been encouraged to invest all their savings in the housing market. But this is what happens when governments interfere in the market, and the price we're paying is that young people can no longer afford to buy. If you don't believe that's a sustainable situation, a correction has to come at some point. And the further down the road it comes the more painful it will be.
    I am inclined to agree with this point, but I think it's entirely about increasing supply and lowering overall prices that way.

    The supply side of the equation isn't unimportant, but we would have to build a huge number of houses to bring down the general cost too much, and politically I can't see that happening to anywhere near the level needed. As you note people have proven to be very resistant to anything which brings down the value of their home.
    Politically, we'll struggle to do any of this: I think that was your point in the proceeding paragraph, that any option here is going to be painful and politically difficult.

    However addressing the supply side brings out, by far, the better outcomes in all this. Yes, we will have to build a considerable number of houses - is this really a huge problem given that housebuilding has been utterly pathetic for a long time?

    At points in this century, we were building double or even triple the number of houses we build today. In some cases, we were just emerging from World Wars, so there's hardly some sort of economic bar to it.

    It's embarrassing that owner-occupation in the UK has fallen substantially behind the levels seen in many countries that were, until recently, behind the Iron Curtain. In fact, we're behind the EU average.
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    (Original post by L i b)
    Politically, we'll struggle to do any of this: I think that was your point in the proceeding paragraph, that any option here is going to be painful and politically difficult.

    However addressing the supply side brings out, by far, the better outcomes in all this. Yes, we will have to build a considerable number of houses - is this really a huge problem given that housebuilding has been utterly pathetic for a long time?

    At points in this century, we were building double or even triple the number of houses we build today. In some cases, we were just emerging from World Wars, so there's hardly some sort of economic bar to it.

    It's embarrassing that owner-occupation in the UK has fallen substantially behind the levels seen in many countries that were, until recently, behind the Iron Curtain. In fact, we're behind the EU average.
    We can’t just crash house prices it would cause another banking crash.

    A minor drop of 10% or so is neither here or there as it’s to be expected when a recession hits.

    The only way to fix the market is a slow correction between wages and prices.

    So a 0% inflation policy on home brought about by building and wage growth slowly eats into how affordable a home is.

    Takes time to fix but it’s sustainable and workable as a solution, I’m yet to see anything else that will
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    (Original post by L i b)
    Yes, a lower value property can help you save up a deposit, but even if a £300,000 house drops to £200,000 in value, increasing interest rates will still make it unaffordable if the net effect is an increase in monthly repayments: that can completely wipe-out any benefit of the lower house value - and indeed you might end up paying back more overall even if the property's sale price is lower.

    I am inclined to agree with this point, but I think it's entirely about increasing supply and lowering overall prices that way.

    Politically, we'll struggle to do any of this: I think that was your point in the proceeding paragraph, that any option here is going to be painful and politically difficult.

    However addressing the supply side brings out, by far, the better outcomes in all this. Yes, we will have to build a considerable number of houses - is this really a huge problem given that housebuilding has been utterly pathetic for a long time?

    At points in this century, we were building double or even triple the number of houses we build today. In some cases, we were just emerging from World Wars, so there's hardly some sort of economic bar to it.

    It's embarrassing that owner-occupation in the UK has fallen substantially behind the levels seen in many countries that were, until recently, behind the Iron Curtain. In fact, we're behind the EU average.
    You make sensible observations but I will make one (slightly lengthy) point.

    It's important to understand the mechanisms by which interest rates affect house prices. Yes, access to and cheapness of credit is one, and if it were only this and everyone was an owner-occupier you might expect the impacts to roughly cancel out. But of course, falling interest rates have made housing significantly more unaffordable, even with cheaper credit, so this does fail the sense check as a complete explanation.

    In the long run we expect the price of a house to be the expected present value of the future rental income which could be earnt, if it were let out. I don't want to get to actuarial-y but changing interest rates change the calculus of this considerably. Traditionally bonds have been the go-to 'safe' investment, but with rates so low and credit correspondingly so cheap, a future stream of rental income starts to look a very attractive alternative. Investors (most notably buy-to-let individual investors) have flocked to the market and this has driven up prices significantly. You note the decline in occupancy-ownership, this is not at all unrelated. Further, if supply were really the problem, rents would be rising too, which they are not to anything like the same extent.

    If rates rose, the first people to suffer would be the buy-to-let investors, whose profit would be quickly wiped out. The Bank of England has been very worried about this (because it's a potential systemic risk) and it's one of the reasons they've been so reluctant to raise rates, and also the reason we've seen tighter lending rules to curtail buy-to-let. Investors who either defaulted or sold out would drive down prices way over and above the increase in mortgage payments for someone trying to get their first foot on the ladder.

    I accept I am extremely hawkish on this, but my view on this is that when you make an investment you take the risk. You cannot expect the Bank of England to effectively bail you out in this way. The problem is sustained low rates encourage people (who may not be that financially well educated) to think this is normal. I honestly believe the long term risks from increasingly unaffordable housing are worse than the short term risk of a crash. At least some market normality would be restored.
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    A lot of renters are looking to outside of London to rent [and commute to London] and are pushing up prices

    http://www.telegraph.co.uk/property/...st-year-going/


    it looks like in London there has been a bit of a drop in prices house prices this year as there are more sellers than last year
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    (Original post by ANM775)
    A lot of renters are looking to outside of London to rent [and commute to London] and are pushing up prices

    http://www.telegraph.co.uk/property/...st-year-going/


    it looks like in London there has been a bit of a drop in prices house prices this year as there are more sellers than last year
    Property in London only goes down in a crash and quickly rebounds
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