Britain’s Impossible Property Ladder

People constantly ask me if I would ever move back to London again. I tell them no, which often shocks people who ask why. Half of the reason, I explain, is because the London I left behind 3 years ago is, culturally speaking, no longer in existence. The other half is that it is simply too expensive to hold a roof over your head in Britain. Both answers always baffle people; the former because nobody can conceive of a city possibly changing that much in such a short space of time; the latter generating the response, “Well, you can’t keep using money as an excuse.” The problem, which many Americans do not understand, is that it is not how much money one earns in Britain. The problem is the British property market.

At the time of press there are currently 2 million people in Britain without a home. The majority of these people are not below the poverty line. They are often people working 40 hours a week, earning an average of £16,000-25,000 ($25,000-39,000) a year. Many of these people are aged between 30 and 40, either 1 or 2 parent families with up to 3 children, single professionals or couples. They are either unable to get on the property ladder because the housing market has completely priced them out, or they are simply at the end of a perpetual waiting list for government housing called a “council home”. Between the 1970’s and 1980’s there was a wait of just a couple of months between applying for a council house and being given a home, it was remarkably quick. Now because of increasing population sizes and demand, the wait can be up to 6 or 7 years. And yet, there is the confounding mystery problem of some 350,000 long-term empty properties across England, Ireland, Scotland and Wales, some which have been abandoned for years. It is estimated that there are enough empty and boarded up homes to populate an entire city the size of Leeds.

To put this to the test, I utilized several websites to pull together a typical situation for the average Londoner.  A full time London Ambulance worker is typically paid between £17-22,000 ($29-34,000) a year.  A four bedroom, 2-storey, 1272 sq ft terraced home in West London’s Shepherd’s Bush area is approximately £675,000 ($1,047,485). (This is the average size of any London house within the M25 highway belt encircling the city. It is also the average asking price of four-bedroom terraced property in East, South, West or North London.) On a 25 yr mortgage repayment at 5.5%, your initial deposit would be £101,000. In the UK, it is a mandatory prerequisite to put down an initial deposit of 15% when buying a house, irrespective of whether you are a first time home buyer or not. Your calculated monthly payments would be £3093 per month interest only, or £4145 per month total repayment.

Best case scenario on a £22,000 a year income, you could possibly borrow up to £110,000 based on your mortgage lender/personal circumstances. This would cover your initial deposit and the first 2 months’ repayment. However if your income was anything less than £21,000 you’d only be able to borrow up to £90,000, making you completely ineligible to get on the property ladder.  Repayments of £3093 a month leave you with absolutely nothing left to live on: someone earning £22,000 will have a monthly income of £1692 a month–before tax. In order to pay £3093 a month, you would need to be on an income of £60,000 bringing in £4616 a month, which would leave you £1523 every month to feed you and your family, pay the horrendously expensive bills and God forbid you have anything that needs repairing. Please bear in mind–I haven’t even deducted the 30% income tax from these figures, nor have I even made consideration for a CAR—this is just a home alone.

The trouble with this £60,000 a year number is that in 2011 a) the average London couple does not earn £60,000 between them, b) the average single parent or single professional in London is not earning £60,000 and c) an income of this size moves you out of the 30% income tax bracket and into the 40% income tax bracket, meaning your mortgage lender is probably going to lend you less, putting your initial deposit on the line.

It is important to remember that the average parent in this generation does not have a nest egg to rely on. In Britain alone there have been 3 recessions in the last 30 years, meaning that the 30-somethings of this age have never really had a successful opportunity to save anything substantial. Couple these numbers with the current global recession affecting huge pay cuts in many sectors, it is understandable that people are now holding fast to jobs that are paying them far less than they are worth. The risk to attempt move to a higher income bracket is simply not worth it when well-paying jobs are so scarce.

For every American who asks why I would never go back to live in London, I charge you: a roof over your head is a basic necessity. 2 million British people are already without that. Would you have any intention of making that number any bigger? I wouldn’t.

Many thanks to Channel 4′s ‘The Great British Property Scandal’ for research statistics.

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