ENG,  Life

Mortgage – Part I (ENG)

After two years of no letters, I’m now writing two days in a row. Let’s see if I can keep up with regular posts.

As I said yesterday, I promised that I would write in relation to the part-time I got recently as I’m saving money to buy a house.

Firstly, it’s important to state that buying a house doesn’t come cheap in the UK, especially in Bristol. Just last year, the house prices have risen a ridiculous 6.7%, meaning that Bristol is just behind London and Cambridge when it comes to increases in house prices.

This means that the average price of a house is now around £220,000.00 (yes, two hundred and twenty thousand pounds for your average 2 bedroom house… I know, trust me, it kills me too).

One of the problems with this? The initial deposit that banks require you to have when you’re looking to take out a mortgage, is rarely less than 10% of the value of the property. So, even if you are looking to buy a property worth £200k, you’ll need to have £20k in cash to put down immediately (not including money for solicitors, stamp duty etc.).

Another problem with this? Wages don’t rise 6% per annum, which makes it very complicated for people to save the necessary funds in order to give their 10% deposit. Just out of curiosity, the latest figures from the ONS (Office for National Statistics) dated early 2016, show an average wage growth of 2% per annum on weekly earners and obviously, the BoE (Bank of England) monitors this closely for signs of inflation.

But back to mortgages, as I doubt anyone else is fascinated with these figures as much as I do!

Most of the people who are now buying a property, are either buying it off from their parents with a lower yield (i.e. their parents sell the house to their son/daughter to help them get into the property ladder, and sell it at a much lower price than they would if they were to sell it to someone else. As the children pay a lower price, the parent receive a lower return on the investment).

This allows them to get a mortgage with a much more substantial lower deposit and also secure a lower interest rate as they are technically getting a bargain. If they don’t keep up with the re-payments, the house gets repossessed by the lender who can then sell it at a lower price than market price in order to arrange a quick sale, but a price high enough to make a profit out of it. Same as it is everywhere. The higher the risk, the greater the interest rate you have to pay to a lender.

If your parents don’t have a second property you can buy off from, but have savings then it’s “Mum and Dad’s Bank” entering the scene. Parents either give or lend the money  their children need to purchase a house. Some Inheritance Tax advice is sought here as there may be tax implications, but I’m not going anywhere near that subject here.

If you’re like me and don’t fall under any of the two categories I just described, you proceed to get a second job – no matter how shit it is – and try to save as much as you can. You know your effort will be well worth it in the end.

There are Government schemes for savers if you are a first time buyer which can help you get on the house ladder; unfortunately I’m not eligible as I committed the big, huge and massive mistake of buying a house in Lisbon a few years ago and because of that I am now faced with this challenge: save enough money for a house deposit with no help at all.

There are a lot of variables one needs to take in consideration whilst contemplating the possibility of buying a property. Working in my industry, I am probably biased but… Location, location, location!

A property is an asset which has a value attached to it and the location is something that will either make a property increase in value over time or conversely, decrease it – which in that case you’ll have what it’s call “negative equity”. It doesn’t mean you’re in debt, but you are left with an asset (and paying for it – your mortgage), but no it’s no longer worth the price you initially paid for. Like cars. Cars always go down in value. So making the right choice in relation the location of a property is a big factor to take in consideration.

A funny thing about the UK system when it comes down to renting a property (or owning it actually!) is the council tax. The council tax is what we refer in Portugal as IMI (Imposto Municipal sobre Imóveis) with the “slightly” difference that it’s paid by the tenant, not the home owner. The amount of council tax you pay is directly connected to:

  1.     How many people live in the household;
  2.     The value of the property.

The council tax bill is the citizens’ way of helping to pay for local services like emergency services, rubbish collections, libraries, schools, street lights, etc.

But I am deviating from what I wanted to write in the first place… My part-time job!

I’ll have to leave it for another time. Next post. I promise.


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