How do people afford nice houses?!

[Dededot]

We have always been extremely careful with money. Bought our first home 4 years ago in quite a cheap area that isn't very nice. It has no communal parking and we never get a space and with number 2 on the way I am desperate to move closer to my parents. We paid £250k for our house, and it's worth £290k now. We still owe £263k.

Between me and DH, we earn £96k a year, but we just cannot afford a nice house in the south. Maximum we could go to is £420k, and then I'd worry about whether it'd be affordable should interests rise to, say, 5%. For that, nowadays you can get very small houses with tiny gardens in the area I want to move to. Have looked at other areas too but seems everywhere is around the same.

I could wait another 5 years when my kids are all at school and I don't have to think about paying £800 a month on childcare, but by then maybe the houses that are 500k now will be 1000k?! Ours is in a bad area so its price isn't increasing in proportion to the nicer areas.

How do normal people afford nice houses when we're in the top 10% earners according to gov stats and can't? Seems everyone I meet has a huge house in a nice area!

Yeah see I think I'd be saving like £1k/month and overpaying £1500 if it wasn't my forever home. Then you'll have way more equity for a move.

(This is to mean that by saving we're talking emergency savings not actual money you are saving to spend that year like Christmas/holiday etc)

If you've got £2500 "spare" cash a month then I'd expect your home to be worth a lot more than £400k.

(I'm in the SE with a £750k house and only about £1k spare a month after everything's covered.)

I think you do need to get more financially savvy. It might be different now with rates increasing but when I was in my last house (only a year ago) with a similar amount of equity to you. I made a plan to pay off the mortgage in 5 years.

That might sound mad because if you add it up just the 2500 it doesn’t make - but if you keep remortgaging and dropping LTV bands and reducing your term each time you do to the max your can afford - then overpay then as well. It’s absolutely incredible the difference this makes to the value of what you are spending. Ie. Instead of spending 1000 and only adding equity of 800 a month, you quickly get to a point where spending a 1000 adds the value of 1200 in future money saved. That’s a 50% increase in return on spending the same amount.

I hope that makes sense.

We live in the south and are looking for a bigger house. We've decided on buying an older house and modernising it as getting one already done up is so much more expensive. We save about £500 a month and have £800 childcare. We are you saving £2500 a month?! That's more than double my mortgage payment!
People borrow so much more these days and have much lower savings- if interest rates shoot up I think most people will be buggered.

The ones I know who've done this successfully without inheritances to help have taken risks - big mortgages and bought tatty houses in good areas and done them up, moving every few years.

I once asked a friend who was an estate agent how people afforded the big houses, fancy cars etc and his answer was that for a lot of them it was all credit, there wasn't much there behind it all. Certainly that was obvious when some couples split up and you saw what they moved to afterwards.

We have been lucky with timing. We bought our first house very cheap; in a cheap area at a cheap time. It needed loads of work which I think put people off but DH is a builder so we did the work ourselves. Paid the mortgage off so saved a lot for 4 years mortgage free. Sold it as prices were rising and made 200k on it. Put the equity down on the next house so large deposit = better interest rate before prices got ridiculous.
Our income is higher than yours and we live in Yorkshire so get more for our money here.

Work hard, be creative and not rely on your sole income. Overpay your mortgage, even if it’s £100, most banks make it easy to set this up online or you can do it via a standing order.

Nice house depends on your view so can differ, higher value doesn’t mean nicer.

Lastly, suggest you go and see a house you think you want and then make a plan of how to get there.

If you can’t see or know what you want, you’re just dreaming.

Moving areas is an issue - you would have way more equity if you’d initially bought in the pricey area. Moving from a cheap area into a pricey one is very difficult.

Youre saving a crazy amount which seems to be for things other than housing - in which case you think you’re frugal but actually housing-wise you’re in the same situation as someone who spends that money on clothes and going out. You’re not prioritising housing in terms of your financial planning, which is fine but you can’t then be surprised that you can’t afford more!

Youre also refusing to stretch yourself in case rates go up - probably very sensible, but others will have been willing to do that and that’s how they have a bigger house.

Honestly I’m a bit baffled as to why you’re finding this so surprising!

Being in position to save £2500 a month means you are very fortunate indeed. Seek financial advice as to the best course of action to take.

We have less than this amount in our total savings pot and live in a small three bed house with no hope of ever moving.

They got bigger mortgages. Yours is very low. Most peoples mortgages in the south are very expensive

As someone who lives in the SE, has a 550k house that we plan to upgrade/upsize to double value house in a few years - I find it entirely baffling that you have £2500 spare a month which you aren’t overpaying into your mortgage.

just why?

We currently funnel absolutely everything (outside of pensions and rainy day obviously), into overpaying current mortgage. Because increasing equity in current house and clawing away at balance with all we’ve got is fundamental to the upsize plan. Upsize isn’t going to magic itself in 4 years time. Yes housing market will
possibly lead to house price increasing but we can’t control or predict that can we now?! What we can do is take clumps out of what we owe to the bank and increase equity. That means for us close to a grand in overpayments in this short 4 year span.

Its really clear. Why you haven’t been doing that if your ambition is a nice or nicer house I genuinely don’t know

Whether you have cash in the bank, or cash invested in your house, both are an asset - one is more liquid than the other, but paying a big mortgage is essentially saving, but getting the pleasure of living in a nice house too. The cost of living in a bigger house is really the incremental interest cost (low at the moment), plus the running costs.

I think your £2.5k ‘saving’ isn’t really saving if you spend it on nice holidays and flights. So I think if you want a nicer house you should reduce your travel expenses and recognise that swapping a liquid asset for an illiquid one is fine, if your ability to repay it is secure. You can always downsize later in life.

I’m also a bit baffled by this. You are saving more than many many people earn.
I take home £1750.
We all have choices to make - you can choose to leave your money in the bank or use it to pay for the house you want. I assume you have been saving at this rate for a while so have a good amount saved.
You don’t have to clear your savings or stretch yourself to the maximum, but taking into account all of that, plus the equity you have I can’t see why you dont think you can afford a house where you want it,
I assume by ‘nice’ you also mean big, as you say you can afford property where you want to live but you think the houses are tiny. I live in a nice house, well I think it is - but its a small terrace.
Its all about compromises - whats most important to you - keeping your mortage low, living in a particular area or having a big house

Another, woe is me post from a poster who is very well off and likely in the top 10% of earners in the country.

I live in the South East, much lower household income than yours (mid 60k range) couple years ago we brought a 3 bed house, in a lovely area which is likely now worth about 370k. We did use a help to buy loan but, our wages have gone up so we can afford to remortage.

On your household income, you can easily afford a more expensive house. This is just a stealth boast, look how much money we are saving and have got. Very classy considering there a cost of living crises going on. Jog on.

If I was use I would want till the childcare costs reduce & then borrow more.

In terms of your other question, most people I know bought before prices went crazy & have normal jobs but tons of equity to move up the ladder. Younger people I know some were given say 20k at 21 which helped because prices again were not so bad. Then I know lots of people who were given say 100k for first flat & then 300k to move up then ladder.

But if you borrowed your salary x 4.5k & equity from current house would you not have the 500k?

The 420k is what I think would be the max I'd be willing to buy, to ensure we could afford it in different circumstances or if interest rates suddenly went up.

You could fix for 5-10 yrs & I would only be very cautious if high LTV

If it makes you feel better we have been saving a similar amount (not for long as just out of childcare) & we are moving. The idea of not being able to save so much is a little daunting but realistically I know to be able to still save & enjoy some disposable income is lucky.

People do the take on crazy amounts of debt (and need a high income to service it, so they are very vulnerable if a job is lost), or have significant family help/inheritance.

House prices going up doesn't actually help anyone moving up the ladder, unless your area increases by more than the area you want to move to (which isn't the norm, because most people want to move to nicer areas).

You pay £250k for house A, have remaining mortgage of £163k and house A has gone up in value by 16%. So you have £127k of equity to play with, which feels like it should be better than £87k of equity.

However, the house you want to move to has also gone up by 16% from e.g. £400k to £464k.

So you've 'made' £40k of additional equity compared to if prices had been static, but your next house will cost £64k more, so you're £24k down. And there will be extra stamp duty on that £64k too.

Only downsizers and investors benefit from increasing house prices. Normal families who want a home just get screwed.

Wish I could move there but DH needs to be within 2 hrs of London as may need to occasionally go to the office. Maybe when we retire!

OP, "within 2 hours of London" includes vast parts of the country thats cheaper than the south-east. In a similar situation I moved from Berkshire to East Midlands, 4 bed detached for same as 3 bed mid terrace on council estate. 1 hour on the train to KingsX.

Large parts of Northamptonshire, Leicestershire, Lincolnshire etc. have places with good value. Cheaper cost of living too (activities/events/restaurants etc)

The train to Cardiff only takes 2 hours if you like Wales. 😉

I think the link between income and property value disappeared long ago.

yep, the wealthiest couple I know don't earn that much but lots of family wealth behind them.

To get on the property ladder, we bought a tiny tiny house in need of TLC. Spent a fortune on it and sold it for £2 grand "profit". But because we had lived in it for a bit we built up some equity that helped with the deposit for this house. Much bigger but needs a lot of work, which we are doing mostly ourselves. We have huge payments every month as our mortgage rate isn't brilliant. No help from family either.

We've lived here for 2 years and only just able to get the bathroom done next week. Our concrete garden is being renovated by us ATM. It looks awful but it's a work in progress.

It doesn't seem like much of a dilemma to me
Use £100k of your equity as deposit using the rest for fees
Buy a £500k house with a £400k mortgage . If you're saving £2500 a month this should be doable.
Then when your childcare costs stop start overpaying the mortgage or saving
People live in Nice houses for a variety of different reasons. Most I assume have a big mortgage to go with the house and aren't saving the amounts you are every month

House prices going up doesn't actually help anyone moving up the ladder, unless your area increases by more than the area you want to move to (which isn't the norm, because most people want to move to nicer areas).

This, this, this!!! and yet so many think it's a good thing 🤷🏻‍♀️

Agree with this. The people I know with the most wealth arent those earning the highest incomes. They are the ones with family backing of some kind.

Bloody hell
Saving £2500 a month! That's your answer. We have a similar income and have nothing left to save after bills and kids. Our mortgage is quite high on a fairly nondescript estate house - not in a nice area, just south east boring boxy house. Increase the mortgage and buy a bigger house?