Escaping the London Doughnut

Posted on 13 October 2014

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Escaping the London Doughnut

“London is no longer affordable for people on normal wages. In fact, it never really was” Stephen Conway, developer, Galliard Homes.

Property values in London continue to rise faster than the rest of the country, recording a 19.1% year-on-year jump, and taking the average property price in the capital to £514,000.” Guardian, 16th September 2014.

It is well documented that 2014 is the year the property prices have recovered and surpassed pre-recession levels. The news is awash with statistics, percentages and measurements, but beyond the numbers lies the dilemma of the first time buyers and many families deciding whether to leave the Capital. The current state of the London property market may well be the impetus for a mass exodus to the commuter belt of the south east.

Relocating outside M25 can potentially save you save thousands of pounds, offer the chance of much more space and potentially provide a better quality of life. On the downside you can expect slightly longer commute times and increased cost of transport but arguably, many people would accept a journey which lasts no more than an hour.

In most London boroughs the property prices are more than 10 times average earnings and increasingly grown up children can no longer afford to purchase properties in the same areas their parents bought years ago. A striking research study by estate agents Stirling Ackroyd showed that the borough with the highest property price increase is no other than Hackney. The housing prices there have rocketed by 864% since 1987- the highest percentage increase in all 32 London boroughs.

Many young people now have returned to their parental homes in the hope of escaping increasing rents and the chance to save money for a larger deposit. As a result, the average age for first time buyers has worryingly increased to 36 years, (with 41 years quoted for buyers in the South West), according to research by Money Supermarket released last quarter. The return to the family home has earned them the name ‘boomerangers’ as they have made a full circle: home-uni-work-rent-home, with 19% of Londoners never expecting to be able to purchase a home.

There is also an increased competition from an unexpected source – baby boomers who are downsizing (or investing in buy to let property, and quite often purchasing cash) are now in direct competition with younger buyers or families having to rely on a mortgage. They have enjoyed an unprecedented return on their property and with low interest rates offering them little return on their savings, they invest in properties which some see as safer investments with the potential to produce a higher return. Many of them are also helping their children onto the property ladder at the same time.

Not surprisingly many first time buyers and young families consider leaving London for a life in one of the towns within the London commuter belt.

The website has identified five future commuting hotspots, which have the potential to see house prices increasing rapidly as they have attracted a large development investment. The website has also calculated the costs of rail commute into Central London. The top town; Colchester in Essex, is only 50 minutes away from Liverpool Street Station with an average cost of a family home at £225,789, followed by Aylesbury in Buckinghamshire, Didcot in Oxfordshire, Basingstoke in Hampshire and Tunbridge Wells in Kent.

But everything comes at a price and quite often people are discouraged by the price of the travel fares which become more expensive the further you live. Let’s look at an example and see how this works in practice.

The price for a family home in the borough of Ealing, West London, is an average of £524,000 according to Zoopla. The price of an adult Travelcard Zone 1 to 4 is £172.80 per month. The average travel time from Zone 4 to Liverpool Street Station is 1 hour and 15 minutes. A buyer with a 10% deposit (£52,400) will have to make provisions for the 4% stamp duty land tax (£20,960), a total of £73,360, before including further purchase and legal costs which are likely to be in the region of £2,000 to £5,000. The amount of mortgage they will need will be £471,000. If we take a look at John Charcol best buys tables (as at 21st September 2014) and select the lowest fixed rate at 3.84%, the monthly mortgage payment will be £2,444.69 per month based on a 25-year mortgage.

Let’s do the same exercise on a property in say – Didcot in Oxfordshire. It takes 45 minutes to reach London Paddington by train and according to the average property price is about £289,000 which is £235,000 cheaper compare to average property prices in Ealing.

Categories: Mortgages, Moving Home, Mortgages London


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