Young grads that move to London are in an almost impossible predicament.
As a London based graduate, you’re probably paying an average of 30-40% of your take-home salary on rent, whilst seeing property prices getting further out of your reach.
I hear you. And when a bog-standard one bedroom flat in Elephant & Castle costs £450,000, how are young people expected to get on the property ladder, let alone climb it!? If you haven't done the math, I’ll do it for you. On a property of this value, with a maxed-out mortgage, the buyer, you, would need at least £60,000 in cash to pay the deposit, stamp duty, surveys, and mortgage broker fees. To borrow the remaining amount, the bank requires that you earn in excess of £90,000 per year. Once you’ve reached their lending criteria, they'll charge around £8,000 each year in interest only mortgage repayments - which means that you’re not even paying the mortgage off!
“But at least I’ll be on the ladder and I’ll be able to sell the property in a few years for a profit”.
But will you?! You’ve paid £12,500 in stamp duty, and £2,500 in other buying fees, so you’re £15,000 down before you’ve even started. Plus you’ll be paying 2% in sellers fees (around £9,000) when you sell the property. I make that around £24,000 in fees to buy and then sell the flat. Oh, and I forgot to mention that that property prices in London have dropped over the last 12 months!
“Can you stop being so negative! What options do I have?! ... I’ve heard that the Governments 'Help to Buy' scheme is pretty good”
The scheme allows you to put down a lower deposit of 5% rather than 10%, but there’s strict policy over what you can and cannot buy. You are forced to buy a ‘new build’ property from a list of their approved developers. On the surface that sounds pretty appealing, but it creates a fake market for new build houses. And guess what, this drives the price of new build properties from these approved developers up, so you're buying in an artificially inflated market. Add this to the fact that once you’ve lived in a shiny new house, the price drops. It's the the same principal when when you drive a new car off the parking lot its value falls. Not such a good investment if you ask me.
“Ok smart ass, what have you got for me?”
Here it is. My solution.
You buy in the north of England.
“But, I don’t want to live in the north of England”.
I’m not saying that you live there. I’m saying that you buy, lets say, a 2-bedroom flat in Nottingham, Durham, York, Lancaster, or wherever, and RENT IT OUT. With around £11,000 in savings, and a semi-decent job, you’ll be able to buy a 2-bedroom flat near a city centre in the north. You can pick a nice flat up for as little as £110,000, and rent it out for around £10,000 per year.
"I'm interested, tell me more..."
Then, imagine this, within a few years you could have a few properties, with rental income of over £20, £30, £40,000. Where do you live? Well you can put this money towards renting in London - where for the same amount that you would have initially fronted for your flat in Elephant & Castle (£60k!), you’ll now be living (yes, renting) comfortably in the equivalent of an £2,000,000 property in Zone 1.
If you're interested but have no idea how to get started, that's what I'm here for. Get in touch at email@example.com.