Why property is more affordable than you think

Posted 12 August 2016 by Kate Faulkner

In the past year, we’ve been bombarded with reports about property being ‘unaffordable’ - with some alarming figures that are enough to frighten the most determined first-time buyer...

Shelter reported that first-time buyers need an average salary of £52,000 to buy a home - and that by 2020, they’ll need an average of £64,000!

Meanwhile, Post Office Money Mortgages reported in April that cities across England and Wales were becoming ‘unaffordable blackspots’ for first-time buyers, and then The Independent reported that renting in London was more expensive than living in most four-star European hotels.

These stories may make great headlines, but is the picture really so bleak?

One problem is that the term “affordable” can mean so many different things; another is that these reports are all based on averages… and averages can be very misleading, being skewed by the prices of huge mansions only available to the super-rich.

Location is all-important, too. For example, average prices in the cheapest area, according to the Land Registry, are £74,468 (Merthyr Tydfil, Wales) with averages soaring to a whopping £1,380,076 in the most expensive (Kensington & Chelsea).  These contribute to a national average of £189,900 for England and Wales.

And since when did first-timers buy “average” properties anyway? What happened to the concept of buying a “starter home” (ie below average prices) with the aspiration of progressing up the ladder as time goes by?

In Merthyr Tydfil, you can start your house-owning journey with a two-bedroom terrace for just £40k. Even in Kensington & Chelsea you can find properties around the £300k mark… a fraction of the £1.38m average!

Wherever you live, even if it’s one of the more expensive areas of the country with properties priced out of your reach, there are still ways of getting on the property ladder for less, including Help to Buy and Shared Ownership.

With a Help to Buy equity loan for a new build, you only need a 5% cash deposit, which is boosted by a government loan of 20% of the purchase price, with no loan fees in the first five years. A 75% mortgage makes up the rest.

Shared Ownership allows you to purchase part of a property - anything from 25% - and pay rent on the rest. You usually have the option to increase your share later on so can still work on owning the property yourself as your wealth improves.  

When you’ve examined all the options, it may be a surprise to know that in some cases it can still work out more cost-effective for you to continue to rent.

Rental prices don’t fluctuate as wildly as purchase prices and, in fact, have been rising at half the rate of house prices for the past 10 years.  They are typically around £500 a month in cheaper areas, rising to £700-£800 in the south, and over £1,000 a month in London and other higher-priced areas such as Oxford.

But even in the more expensive areas, it may be better for you to rent, especially if you don’t have the large deposit you’d need to buy in these parts of the country.  For a £400k property in Oxford bought with a 10% deposit, for example, you’d be paying £1,900 per month in mortgage repayments, with a 4% mortgage rate, of which £1,200 is interest, or “dead money”. If you rented the same property, it would cost you £1,150. Pretty much the same amount of “dead money” either way - and no maintenance costs to pay if you’re a tenant! Of course you don’t benefit from any equity gain, but it’s still a cost effective way to put a roof over your head now.

Whether you want to rent, buy or are still deciding, it’s a good idea to talk to agents in your chosen area, check out sold property prices and investigate affordable options designed to help people like you. Need more help? Not sure whether to buy or rent? Contact me at www.propertychecklists.co.uk.

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