On the punishingly depressing cost of housing in the UK in relation to median income and expenditure patterns

I’ve been updating the stats on my favourite topic – the punishingly depressing economics of basic expenditures for the average income earner. I started out on this post wondering what kind of lifestyle someone in the UK could afford if they were paying off the average mortgage and living off the average wage. It turns out things aren’t as bad as I thought – you don’t have to live of rice and beans, and you can even afford a car and the odd holiday, but only if you sacrifice your private pension and are prepared to face poverty in old age!

Taking the low end of average (mean) 2018 UK housing costs and the average (median) 2018 UK income and (mean) expenditure the following holds true (sources below)…

IF you’ve got £70K in the bank to pay for a 25% deposit on the current average UK house price of £227K and manage to get the best mortgage deal (currently 1.7%), then (assuming everything remains constant) you will be able to afford your mortgage repayments AND an average level of UK expenditure for the next 25 years, as long as you don’t need to spend anything extra on education or health care and can live off a total pension pot of £100K after 40 years of contributing £100/ month (calculated at 3% compounded interest).

NB the stats above and below only hold true if you’re lucky enough to have £70K in the bank to slap down as a deposit on yer first house. If you don’t have that much, then things will be a lot worse for you.

2018 Average housing and mortgage costs

The average UK house costs £227 000, and a 75% mortgage on that would cost from between £280 000 (at 1.7%) to £380 000 (at 4.33%) over 25 years (source: money advice service).

After you’ve saved the £70K – £95K 25% deposit you’d need to get either of the above mortgages, you’re then left with the following monthly repayment figures…

  • £933/ month for £280K over 25 years
  • £1266/ month for £380K over 25 years.

NB – If you’re living in the South East of England, you can increase those figures further: I sold my flat last year for £240K, and as far as I’m concerned, the buyers got a bargain.

2018 average uk income and average expenditure

According to the ONS, the average gross median income in the UK is £28677 per annum, which after income tax, national insurance and allowing for £100 month pension contribution, means you’re left with £1827/ month (source of calculation).

£1827 (average disposable income) – £933 (mortgage payments) = just under £896/ month let to live off. Worryingly this figure matches up almost perfectly with the average expenditure, according to the ONS’ family expenditure figures for 2018.

To calculate the figures below I * each category by 52, divided by 12 and then by 2.4 (average household size)….

qualification, Conclusion and a Solution

I’ll confess to not being too sure whether or not using a combination of median income and mean housing and expenditure costs render this whole analysis useless…. comments to address this are welcome.

Assuming that it’s fair enough to combine the two, then for MEDIAN income earner, being chained to a mortgage means the best you can hope is an average, reasonable life, but only at the cost of NOT SAVING towards your retirement, and with absolutely no wiggle room if you have unexpected increases in expenditure, let alone if interest rates creep up to 2,3 or 4% (NB I worked out the above at the BEST mortgage rate, even better than the one I’ve got with a 60% deposit!)

And NB again, these are median income figures – 50% of people in the UK are in a WORSE position. At least 50% given that nowhere near that percentage have got £70K to sink into a deposit. And if yer under 25, just forget ever owning a house because you’ve probably got debts to pay off rather than savings.

However, this situation is a social creation – a consequence of us having a housing and mortgage market which as far as I’m concerned just aren’t working.

My proposed solution is for someone to wave a magic housing wand and just neutralise the housing and mortgage market – by casting a ‘fuck it, this is just stoopid’ spell, the effect of which would be to wipe out everyone’s mortgage debt, set land value to zero,  and take the average house price back down to what it cost to build it – around £30-40K.

Then half the population wouldn’t have to work so hard just to pay off their artificially created mortgage debts. Wouldn’t that be better?

And it’d have the added advantage of wiping that smug grin of Kirsty Allsopp’s face too.

Pic Source – Allsopp – https://www.hellomagazine.com/healthandbeauty/mother-and-baby/2018091162159/kirstie-allsopp-leaves-twitter-backlash-smashing-ipads-kids-punishment/


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