OK, let's tell it how it is with us.
My wife and I both work full time. Our combined net income is about £4k pm. We have 2 primary school aged kids (state school) and employ a Polish au pair for £75 pw. This is inexpensive childcare let alone for a child minder, cleaner, clothes washer and ironer. We've no family nearby. In fact I have little family left, my father having died 10 years ago aged 60 and darling sister having passed away earlier this year at the ripe old age of 39. My mother and stepfather live in Australia. My wife's aged mother is 130 miles away. So, hired help is essential if we are both to work full time.
We earn too much for tax credits. My wife's a teacher and contributes 15% to her final salary pension plan in order to try to make up for the years she was working abroad and a stay at home mum. I contribute nothing to my employer's group personal pension; can't afford to. Our rent is £1k pm and 3.5 years ago that represented a 3.5% gross yield for the landlord. There has been no rent increase since then.
So, accommodation is about 25% of net income. We thought we'd be able to save each month but the reality has been that we are struggling to make ends meet. We have two modest cars with a combined value of about £4k. We both work very close to home and therefore spend on petrol is tiny. Yes, we go out for a meal once every week or two and pay for a few activities for our kids but we've been overdrawn the last couple of months and are again now.
So here we are. Within a few weeks we'll know more or less which school my eldest will be going to (11+ exam results) and it will be crunch time. We decided to stay renting until we knew about the secondary school situation.
Buying something suitable (has to be 4 beds) will cost us £400k, no doubt about it. That doesn't get a palace, far from it. The kind of house I feel I deserve (yes, I know this is arrogant, but that's what I feel) would be nearer £500k.
I have cashed in my inheritance and, combined with equity from our sale 3.5 years ago, it gives us a deposit of over 200k. It seems there are still mortgages available at 5% for 10 years. This works out at around £1,200 pm or 30% of net income. Being middle aged we can't expect big pay rises (far from it - mortgage protection insurance would be essential for me at least) and we know from experience with a £1k pm accommodation cost that we will struggle with this. Furthermore, we'll have no savings and the prospect of helping our kids through college etc.
Looking around me, my work colleagues don't exactly seem to be finding it easy either. One's wife has gone back to work part-time at a supermarket rather earlier than I'm sure she wanted to do with a 12 month old baby. The other is taking on a weekend job as a security guard. A friend who works in sales and has in the past always appeared to be doing just fine thank you seemed rather less blase about money the last time we met.
My wife wonders how everyone is managing to survive. The only response I can think of is that they didn't sell their houses 3.5 years ago! It's not a flippant comment. They will have low mortgages and equity to release. Most will be in their first house, having had a flat previously. I hope they are happy where they are though because moving up the chain will be horribly difficult.
Compare this to those in their mid-50s. Two people on decent incomes were able to move up the ladder far more easily it seems to me. At similar stages in their lives their children seem to me to be living in much more inferior accommodation.
To cut a rambling post short, I just can't see how these house prices can be sustained. Sure, there's still plenty of credit available but I can see a situation where people are trapped not by negative equity but by excessive debt. If the economy hiccups and/or confidence takes a dive then surely it all falls down.
On a personal note, it makes me wonder what the point is of us both working so hard only to constantly struggle to get by. If the Australian house market keels over soon I'll be very tempted to head out there (we already have the passports) where we can buy outright and then struggle like hell to find work in order to pay for the remaining living costs.
