- Rachel, earning £100k annually with £75k in savings, feels financially strained living in London
- Despite her top percentile income and considerable savings, she believes she’s unable to afford to buy a home on her own
- Consumer champion Sarah Davidson advises Rachel to lower expectations and consider smaller properties as a first step
The median annual wage in the UK now sits at £39,039, with the average Brit’s savings pot amounting to £16,000 (although 39% have less than £1,000 put away).
Both in terms of income and savings, this week’s Money Problem reader, Rachel, is far better better off than most people.
But despite earning £100,000 a year with a nest egg worth £75,000, the 32-year-old from London still feels as though she’s struggling financially.
After her hopes of buying a home were recently dashed by a mortgage broker, Rachel got in touch with Metro consumer champion, Sarah Davidson, to work out where she’s going wrong.
The problem…
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Before I start, I appreciate this is a first world problem but it’s hard not to feel genuinely annoyed about it.
I come from a fairly ordinary background. Decent school, parents who were comfortable and owned a modest home but no real wealth to pass on. After university I worked hard, built a career and ended up in London, which is where my job and industry is based.
I’m now 32, debt-free and earning £100,000. I enjoy my job and I’m very aware that this puts me in a fortunate position. I can afford my rent, bills and general lifestyle without much stress and I have a good quality of life, which I’m grateful for.
I have around £42,000 in cash, £25,000 invested in a global equity tracker and £8,000 in a LISA. I could potentially borrow around £10,000 from family, but I’m not in the position where parents can gift a significant deposit.
Despite all this, I recently saw a mortgage broker who told me, bluntly, that I don’t earn enough to buy on my own. I’m in the top percentage of earners in the country and yet I’m still London poor. Friends in the north earn less than half of what I do but live in nice houses with gardens. My job is very London-centric, otherwise I’d seriously consider moving away.
At this point I’m not really sure what the sensible next step is and I’m feeling a bit deflated by it all. Do I give in and look at shared ownership? It feels like my options are change career, leave London or marry a rich man.
What would you do if you were in Rachel’s position?
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Buy a smaller property in London.
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Consider shared ownership.
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Move out of London.
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Change jobs to increase income.
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Wait and save more money before buying.
The answer…
Okay Rachel, when you say you can’t afford to buy a home in London are you actually saying you can’t afford to buy a four-bed house in Clapham?
Most lenders will let you borrow up to five times your salary and still get a mortgage with a 10% deposit. You’ve got a £75,000 deposit and five times your salary is £575,000.
Do not be ridiculous. Of course you can afford to buy a place in London.
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I’ve just looked on Rightmove and you could purchase yourself a one-bed flat in Shepherd’s Bush for £300,000. You can walk to Kensington and Notting Hill in under 20 minutes for heaven’s sake.
With your deposit, you can get a two-year fixed rate mortgage from Halifax with a 3.9% rate and 25-year term, making your monthly mortgage repayment £1,099. You won’t even need to pay any stamp duty.
Let’s say you want a two-bed – I’ve just found one for £300,000 a ‘stone’s throw’ from Dulwich Park. That’s a very nice part of London.
More Metro Money Problems
Okay, okay. For argument’s sake you don’t want a flat, you want a house. For £550,000 you can scoop a three-bedroom house in Hither Green – another very nice area. Even though your new place is over half a mill, you’ll still have change after you pay the stamp duty at £17,500.
I am going to be straight with you, Rachel, get a grip.
Your options are not, as you say, change job, leave London or marry a rich bloke to buy your mansion for you. Don’t be so melodramatic and don’t be a brat.
You need to change your expectations. This is your first home, not your dream home. That comes later.
Do you have a story to share?
Get in touch by emailing MetroLifestyleTeam@Metro.co.uk.
