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Dave Beans

The Million Middle Class Families Who Cannot Afford To Buy

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http://www.dailymail.co.uk/money/mortgageshome/article-2410104/The-MILLION-middle-class-families-buy-home.html

Baby Dylan is only thinking about crawling across the floor at the moment. But as the six-month-old gets bigger and wants to stand, toddle about and then romp around his parents’ flat, he’ll need much more space.

‘That’s when the full force of the nightmare of renting in a flat is going to hit us hardest,’ frets father Jeremy Cole.

‘With a new family, we’d love to be able to buy our own place with a garden and start to make a real home. There’s stability for Dylan, a secure environment, friends and schools to think of.

‘But it’s nigh-on impossible to be able to save enough money to scrape together a deposit to get a mortgage.

‘Even though our income is more than many, with savings rates where they are, building a decent-sized pot is a mammoth task. It’s just off the scale.’

A small two-bedroom terrace house in Havant, near Portsmouth, where Mr Cole, a 49-year-old design engineer, and his wife Bonnie live, is on the market for £150,000. It doesn’t sound like it’s out of range for a middle-income couple like the Coles, who have a combined income in excess of £40,000, boosted by Bonnie working part-time as a store assistant.

If they could stump up a five per cent deposit of £7,500, they could get a mortgage with monthly payments of £792 — which would be affordable on their current income. Although it’s higher than the £565 a month they pay in rent for their two-bedroom flat — which they deliberately chose to save money — they say the extra cost to finally get on the ladder would be worth the effort. But a property remains out of reach. On top of childcare costs of £200 a month, a £160 bill for petrol for the family car and loan repayments for money spent on their recent wedding, there just isn’t enough to make any headway.

‘Whenever we’ve built up enough savings to actually think a deposit is within reach, we’ve then been hit by fees for landlords and letting agents, as well as moving costs,’ says Mr Cole.

‘And despite taking really good care of our rental property, we never get our full deposit back. Now that Bonnie is working only part-time so she can look after the baby it’s going to be even harder to save.’

The Coles’ rental nightmare doesn’t just concern financial woes. Fierce competition and rising rents have also forced them to regularly move: they have had to change flats every year since 2008. Mr Cole says: ‘The worst part is that you never ever feel at home. ‘You can’t paint the bathroom, put pictures on the wall or grow anything in the garden because you’ll probably move before you see the rewards.

‘And it’s actually really embarrassing having to rent. Most people I know now own a property — but they got help from their family. Neighbours look down on you and have the attitude you don’t really have as much right as them to be there. It’s like you’re a second-class citizen.’

Mr and Mrs Cole are far from alone in their experience. Thanks to a toxic mix of a lack of new homes, a resurgent property market, rock-bottom savings rates, tougher mortgage rules and soaring rents, a record number of middle-income families are caught in the rental trap.

It is these aspiring families — often dubbed the ‘squeezed middle’ — who are also suffering from rising living costs and negligible annual payrises. A staggering one in five families now rents privately in the UK. That’s a massive 1.2 million households including single parents, according to Shelter housing charity — up from just one million two years earlier.

Meanwhile, home ownership is at 64 per cent, the lowest figure for nearly 30 years. In 2001, the figure was 70 per cent. And according to the English Housing Survey, the pace of renting is accelerating at an alarming rate. The most recent figures for England show a staggering 874,000 couples with children rented a house or flat in the private sector last year. This figure is up by nearly a third over just one year. In 2008/2009, it was 535,000, and in 2006/2007, it was 386,000.

In six years, it has more than doubled. Experts believe it is likely to hit one million in the next twelve months. Now fears are growing that new Government schemes such as Help To Buy will push prices beyond even more people’s reach, and that only the lucky few with cash from parents or grandparents will be able to clamber onto the housing ladder.

Sam Bowman, director at the Adam Smith Institute, says: ‘Making taxpayer-subsidised handouts to homebuyers will only drive further house prices up.

‘This risks a bubble, improving access for a select few but making housing even more unaffordable for most people.’

HOW WE BECAME A NATION OF RENTERS

The major factor pushing ownership out of reach is high house prices. Despite the credit crunch pushing down prices nationwide, in some places by a fifth, they have bounced back in many parts of the country, and are growing at pre-2007 levels.

House prices have jumped by almost £500 a month over the summer as the market continues to recover. The average price for a UK home now stands at £170,514 — up 3.5 per cent from last August, according to Nationwide Building Society. At the start of the property price boom in 1996, it was just £62,000.

Today’s house prices are out of reach for most first-time buyers who don’t have wealthy parents to call on for help with a deposit. In July, Shelter suggested a staggering £2 billion was being contributed by parents to help children of all ages — from 18 to mid-40s — on to the property ladder. The average handout is £17,000, which is enough to cover a 10 per cent deposit for the average property.

It also discovered almost a third of property purchases wouldn’t have happened without help from the buyer’s family. Today, to get a decent mortgage at around 4 per cent you need at least a 10 per cent deposit. Even a 5 per cent deposit — which would allow you to qualify for a mortgage at 5.5 per cent — requires you to save £8,500.

Yet while house prices have risen sharply, wages have not followed suit. Pay freezes introduced in the wake of the financial crisis mean wages are stagnant. In fact, thanks to inflation, real earnings are back to where they were in 2003, according to the Office of National Statistics. So while in 2001 the average house price in England and Wales was six times the average person’s annual salary, today it is nine times your yearly wage. At this rate, it is impossible to get a mortgage without a huge deposit.

But on top of this, savings rates have sunk to rock-bottom. Not a single savings account beats inflation — which currently runs at 2.8 per cent. The average interest rate on an easy access savings account is just 0.7 per cent, according to Moneyfacts.

‘This gives you just £7 interest on every £1,000 saved — a risible sum for anyone trying to save for a deposit,’ says Justin Modray at financial advice site

CandidMoney.com. It takes an earning couple real dedication to save huge chunks each month if they’re serious about buying — and many just don’t got the spare cash to do it.’

And things aren’t likely to improve any time soon. Last week, Mark Carney, the new Governor of the Bank of England, hammered home his message that interest rates were unlikely to rise before 2015. Savers, he said, would have to take a second seat to economic growth — which means continued low rates. Even getting a mortgage is also more difficult.

Banks have become far pickier about who they will lend to, using tougher affordability criteria to make sure borrowers run less risk of missing monthly payments.

Meanwhile the financial crisis has seen many previous owners forced back into renting because they couldn’t afford their mortgage repayments.

This has opened up huge opportunities for buy-to-let investors, who are increasingly able to take advantage of mortgage rates as low as 1.74 per cent for a two-year fix. With a back book of income- generating properties, the investors are attractive to lenders and better able to snap up homes with greater financial firepower. This has created a vicious circle for many renters. With fewer homes available to buy and greater demand for rental properties, prices have soared.

CHILDREN PULLED OUT FROM SCHOOLS

It’s no longer only students and young professionals who live in private rented accommodation. There are nine million people of any age classified as renting in England and Wales, and a third of these are families with children, figures from the Office for National Statistics shows. Half are older than 35.

‘Renting is particularly worrying for families, as if they are moving regularly it means children have to change schools and can’t get a stable education,’ says a spokesman for Shelter.

‘One in ten renting families have had to pull their children out of school due to moving over the past year.’

The instability, down to the need to regularly move, can be very damaging. A third of private renters only stay in the same property for less than a year; two thirds for less than five years.

Campaign group PricedOut also says the quality of accommodation is a major worry for families. Spokesman Duncan Stott says: ‘Private renting in the UK is simply not fit for purpose for the one in five families who are stuck there. ‘The houses available to rent are often the most likely to fail the decent homes standard, and getting the keys to the house often means paying rip-off fees to the landlord’s letting agency.

‘Worse, the contracts last for 12 months at best, meaning no stable home for their children.’

RECORD £738 RENTS HINDER SAVINGS

Increased demand for rental properties has pushed the cost of renting a flat or house to a record high. In July, the average rent in England and Wales hit £738 a month — up from £676 in 2010. And that is just the average. In London — where half of all households rent — the average cost is an eye-watering £1,118.

Even in the North East, where rents are cheapest, it still costs tenants £527 a month. For anyone earning the national average wage of £26,500, this means just under half of take-home monthly is taken up with rent. On average, private renters spend 43 per cent of their income on rent, compared with an average of 19 per cent of income paid out on a mortgage by owners, and 29 per cent spent on rent by social tenants.

And costs are only going to increase further as demand gets tighter. Letting expert LSL Property Services expects average rents in England and Wales to hit £800 a month by mid-2015 — up a fifth since 2010. This means it is only going to get harder for those stuck renting to save for a deposit.

FEES AND CHARGES ADD TO THE MISERY

On top of rent, there are often also ludicrously high letting agent fees.

In recent months, both MPs and the Office of Fair Trading are calling on the Government to crack down on rogue letting agents who exploit tenants and landlords with sky- high fees. Last October, Money Mail revealed how some tenants were being made to pay £2,200 in fees and deposits before they had even moved in.

Admin fees which supposedly cover the cost of drawing up paperwork can range from £90 to £375. Other middlemen charge additional fees for drawing up an inventory, performing a credit check and even dealing with your deposit — which can often be as much as £2,000 upfront. And the charges don’t stop once a tenant moves in. Frequently, there is a £90 fee for renewing a contract. Experts say there is no justification for agents charging this much. Many of these fees are hidden in the small print and not revealed to tenants until after a contract has been signed.

The problem is that letting agents are unregulated, with only some signing up to a voluntary code of practice such as the Association of Residential Letting Agents. As of April, though, they must belong to an approved redress system.

Shelter says it received 85,000 complaints about rogue landlords in 2012. Many neglect their properties and, as a result, around 1.4 million houses do not meet the basic standard of being a decent home. The other major problem faced by renters is the length of tenancy agreements. Renters rarely get a contract for longer than 12 months, after which they can be evicted by their landlord without reason with only two months’ notice.

WHAT YOU CAN DO TO SPRING THE TRAP

It’s easier said than done, but the best way of escaping is to save, save, save to raise the biggest deposit possible. It may sound drastic but the easiest way of doing this is to move in with parents or family for a fixed period. Even one to two years could make a difference.

Over a year you could save £8,856 by skipping the average £738 a month rental payment paid in England and Wales. This, of course, assumes your family has the space and is willing to take on you and your family rent-free. If you are saving for less than five years it is pointless risking your cash on the stock market. Instead, save in bank accounts paying the best rates of interest. Although it won’t be much, it’s better than nothing.

The best Cash Isa is with Tesco at 2 per cent. The best savings account is Sainsburys’ eSaver Special at 1.24 per cent (1.55). Since the credit crunch, banks have made it harder for everyone to get a mortgage, but if you can rustle up at least a 5 per cent downpayment you can still climb on to the housing ladder.

Be aware, though, that interest rates can be eye-wateringly expensive, making your mortgage more costly. Also remember, even a small drop in house prices could put you in negative equity.

The best five-year deal is with Leeds BS at 5.39pc with a £999 fee. Monthly payments on £150,000 are £911 and the total cost is £55,659. For those able to raise a 10 per cent downpayment, things are a little better. Nottingham BS has a five-year fixed rate deal at 4.39 per cent with a £299 fee. Monthly payments on £150,000 are £824 and total cost is £49,739.

If you want a new home you could consider taking out a loan through the Government’s Help To Buy scheme. It allows you to buy a new build property worth up to £600,000 with a 5 per cent deposit and a 20 per cent equity loan. Because you have the equivalent of a 25 per cent deposit, the mortgage rates you are offered are generally cheaper.

The catch is that you repay the loan by handing over 20 per cent of the value of your home when you sell. It may be worth waiting until January when the second stage of the Help To Buy scheme is rolled out. This is a £130 billion mortgage guarantee scheme which could see the market flooded with 500,000 cheap loans for those with as little as a 5 per cent deposit on any property worth up to £600,000. Unlike the first part, you do not need an equity loan. Those unable to save could turn to friends or family.

Aldermore Bank will allow homebuyers to borrow 100 per cent of the property’s purchase price, without putting down a cash deposit. However, a guarantor (usually a parent) must be willing to have a charge on 25 per cent of their own property for ten years. It’s three and two year fixed-rate deals charge interest at 5.48 per cent with a £1,298 fee, giving monthly repayments of £919 on a £150,000 loan.

...so if that bloke will be in his mid 80s before he'll be able to pay off that mortgate (if he ever manages to get one)....doesn't sound like he'll be likely be able to overpay at the moment either ...

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http://www.dailymail.co.uk/money/mortgageshome/article-2410104/The-MILLION-middle-class-families-buy-home.html

Baby Dylan is only thinking about crawling across the floor at the moment. But as the six-month-old gets bigger and wants to stand, toddle about and then romp around his parents’ flat, he’ll need much more space.

‘That’s when the full force of the nightmare of renting in a flat is going to hit us hardest,’ frets father Jeremy Cole.

‘With a new family, we’d love to be able to buy our own place with a garden and start to make a real home. There’s stability for Dylan, a secure environment, friends and schools to think of.

‘But it’s nigh-on impossible to be able to save enough money to scrape together a deposit to get a mortgage.

‘Even though our income is more than many, with savings rates where they are, building a decent-sized pot is a mammoth task. It’s just off the scale.’

A small two-bedroom terrace house in Havant, near Portsmouth, where Mr Cole, a 49-year-old design engineer, and his wife Bonnie live, is on the market for £150,000. It doesn’t sound like it’s out of range for a middle-income couple like the Coles, who have a combined income in excess of £40,000, boosted by Bonnie working part-time as a store assistant.

If they could stump up a five per cent deposit of £7,500, they could get a mortgage with monthly payments of £792 — which would be affordable on their current income.

Although it’s higher than the £565 a month they pay in rent for their two-bedroom flat — which they deliberately chose to save money — they say the extra cost to finally get on the ladder would be worth the effort.

But a property remains out of reach. On top of childcare costs of £200 a month, a £160 bill for petrol for the family car and loan repayments for money spent on their recent wedding, there just isn’t enough to make any headway.

..

The Coles’ rental nightmare doesn’t just concern financial woes. Fierce competition and rising rents have also forced them to regularly move: they have had to change flats every year since 2008.

Mr Cole says: ‘The worst part is that you never ever feel at home. ‘You can’t paint the bathroom, put pictures on the wall or grow anything in the garden because you’ll probably move before you see the rewards.

‘And it’s actually really embarrassing having to rent. Most people I know now own a property — but they got help from their family. Neighbours look down on you and have the attitude you don’t really have as much right as them to be there. It’s like you’re a second-class citizen.’

..

HOW WE BECAME A NATION OF RENTERS

The major factor pushing ownership out of reach is high house prices.

Despite the credit crunch pushing down prices nationwide, in some places by a fifth, they have bounced back in many parts of the country, and are growing at pre-2007 levels.

House prices have jumped by almost £500 a month over the summer as the market continues to recover.

I think the only factor pushing ownership out of reach is high prices! However the Mail doesn't say there needs to be a correction clearly it's not ready to admit that prices need to come down. Certainly their also needs to be changes to the rental market so people don't have to keep moving every 12 months but then with the fees the letting agents make they want the churn.

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So its easier to move from a flat to a house with a garden when you 'own' rather than buy ?

Try telling that to my sister or mate who have been trying to do just that coz of kids recently.

One only managed to do this after arranging a flat swap with his uncle. Even then he still only managed to move to a flat.

My sister is still trying to sell with very little interest.

If they were renting ? Both could have done it with minimal hassle in 8 weeks . .

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The Coles could rent a pretty immaculate looking two bed place for less than the quoted mortgage on a two-bed place in Havant:

£720pcm asking rent:

http://www.rightmove.co.uk/property-to-rent/property-43032278.html

I understand their frustration at getting ripped off by letting agents; they ought to challenge them a bit more. Buying a two bed house and paying £790pcm mortgage would be a big error though when places are available to rent for considerably less.

I'll be adding to the 'couples with children who rent' stats in nine weeks or so. In the circumstances, I'm delighted about it.

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Combined 40K a year is middle class? Isn't that less than median salary?

Median household income in the UK is less than £20,000 pa.

Median salary is indeed just over £20,000.

I suspect that people now use "middle class" in its American sense i.e. people who are neither rich nor poor. Which, incidentally, was the meaning of the equivalent phrase in the 17th century - the "middling sort". And you could argue that the median is the very essence of the middle.

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loads of debt = "financial firepower"

Dedication, dedication, dedication's what you need... if you want to escape the "rental nightmare."

"Only going to get worse."

Get the message, sheeple?

:'(

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There is only two things that you can do........increase wages/income/taxes or reduce housing and the cost of living.

.....but you can't increase wages at the bottom end without feeling it at the top end and creating more unemployment......and you can't reduce land and building prices and strengthen the pound by increasing interests rates without feeling it at the top end.......

If it were me I would prefer to work on getting housing, rents, fuel, food, water, transport, imports and general living costs down....time to take a step backwards .......exponential increasing costs can't continue the way it is going, printing money and buying debt to roll over indefinitely forever and ever, lower interest rates but more interest to pay......higher wages will not make us wealthy when you put it in one hand then take it away from the other hand....nobody else will afford to buy your non existence productivity....looks good on paper only. ;)

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Three things,

3, Devalue the Pound, making the UK's wages cheaper relative to the EU and US - Takes a few years to feed through though as production has to be diverted from other countries, production lines set up, call centers established etc. etc.

however I am certainly not convinced by devaluation after the last round achieved bugger all.

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Loan repayments on a wedding?

I must be getting old.

Lol, this. Friends of ours spent £20k on their wedding. Its nuts, but if people want to spend that money then I say go for it, just don't complain that you have no money and a pile of debt.

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Loan repayments on a wedding?

I must be getting old.

We have our wedding on Saturday, cost under £5k and includes band, catering for 60, free booze for 60 venue hire, wedding dress, suit, rings, registry office.

I think £5k is a lot and would have rather spent under £3 which is what we were aiming for, but you find that catering is around £11x60 = £660 + venue hire £400, so there is a grand, band £600 which is a bit extravagant - home supplied disco for in between. Home made wine for free booze.

I suppose we could have skipped the band and hired the village hall, which would have saved a grand. could have also got the catering cost down to around £300 if we had preped a cold buffet instead.

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There was some article in the wail yesterday who claimed that they had spent one pound on their wedding, and that was the cost of the dress...

They got married in a barn behind their house and asked guests to bring food...

Edited by Dave Beans

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http://www.dailymail.co.uk/money/mortgageshome/article-2410104/The-MILLION-middle-class-families-buy-home.html

I think the only factor pushing ownership out of reach is high prices! However the Mail doesn't say there needs to be a correction clearly it's not ready to admit that prices need to come down. Certainly their also needs to be changes to the rental market so people don't have to keep moving every 12 months but then with the fees the letting agents make they want the churn.

Seriously posting that as an example for the bearish anecdote for house prices is nuts.

Let’s ignore the fact the guy is 49 and in his 49 years he has failed to save £7.5k or that they borrowed money they didn't have to spend on a wedding opting not to save and invest for their future.

Just look at the maths. If they were to go for the house they would end up paying £792 repayment mortgage which is probably around 4.5% interest rate and so the interest payment is inside the rental payment by a few quid. So if they hadn’t borrowed money for their wedding at high single digit interest rate plus some credit cards maxed at high teens then they would probably have enough money to pay the extra couple of hundred of capital repayment a month.

There will always be people that fail to ever help themselves, sad for them but this example is utterly ridiculous.

The only thing more ridiculous is that you think that some boomer needs to be bailed out by a housing correction!!

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We have our wedding on Saturday, cost under £5k and includes band, catering for 60, free booze for 60 venue hire, wedding dress, suit, rings, registry office.

I think £5k is a lot and would have rather spent under £3 which is what we were aiming for, but you find that catering is around £11x60 = £660 + venue hire £400, so there is a grand, band £600 which is a bit extravagant - home supplied disco for in between. Home made wine for free booze.

I suppose we could have skipped the band and hired the village hall, which would have saved a grand. could have also got the catering cost down to around £300 if we had preped a cold buffet instead.

Congratulations and I hope you and your new wife have a brilliant day.

Edited by cheeznbreed

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So, DM just happened to pick a couple where the bloke is 49 and just had a baby, yet has no savings and is repaying a loan for a slap-up wedding?

I wonder how much the average DM reader can empathise with their circumstances?! Many DM readers will have the knives out straight away, women especially.

Ergo, this is actually a thinly disguised piece of BTL ramping... The 'why has a 49 year old got no savings' and 'why did they have a wedding on tick' and the 'we had to scrimp' comments undermining the real issues that should be discussed just become utterly inevitable.

The fact they can rent for 500 odd quid and it's STILL 700 odd quid for a mortagage at 0.5% base rate shows you the writing is probably all over the wall anyway. Likewise the comments by BTL ninjas stating the banks want 25% capital down and 125% rental income over repayment - ooh, could that possibly be because they think rents and prices are 25% over-valued in the longer term?

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Seriously posting that as an example for the bearish anecdote for house prices is nuts.

Let’s ignore the fact the guy is 49 and in his 49 years he has failed to save £7.5k or that they borrowed money they didn't have to spend on a wedding opting not to save and invest for their future.

Just look at the maths. If they were to go for the house they would end up paying £792 repayment mortgage which is probably around 4.5% interest rate and so the interest payment is inside the rental payment by a few quid. So if they hadn’t borrowed money for their wedding at high single digit interest rate plus some credit cards maxed at high teens then they would probably have enough money to pay the extra couple of hundred of capital repayment a month.

There will always be people that fail to ever help themselves, sad for them but this example is utterly ridiculous.

The only thing more ridiculous is that you think that some boomer needs to be bailed out by a housing correction!!

Er no I'm more commenting that the rental market is unfair forcing people to continually move which generates a great income for EA's.

I'm saying the Wail doesn't want to admit in the article that a correction needs to take place so people can afford to buy, I'm really not that interested in who the article is about and realistically the journalist may have just made them up.

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Er no I'm more commenting that the rental market is unfair forcing people to continually move which generates a great income for EA's.

I'm saying the Wail doesn't want to admit in the article that a correction needs to take place so people can afford to buy, I'm really not that interested in who the article is about and realistically the journalist may have just made them up.

No the problem is that these people were hoodwinked into borrowing money for a wedding instead of buying a house for their family. Not sure you've drawn the right conclusion from the little story.

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