The TV presenter Kirsty Allsopp caused a bit of a stir last week (February 6) by suggesting to the Sunday Times that “young people could afford to get on the property ladder if they gave up luxuries, such as their gym membership and foreign holidays and looked at cheaper areas.”
She has a point, as shocking and unpalatable as it may seem to some.
This made me pause to reflect how today's first time buyers - indeed, any buyers today, really - have no idea of the pain experienced when buying a home or what it took to get that first foot on the property ladder a generation or two ago.
I know that there has always been a 'baby boomer era' different mindset about spending and saving. Today we seem to be living in an “I want it now” world.
But in my younger days if you wanted something you saved for it, that included a deposit to buy a house. This was parentally drummed into me from the day I started my first Saturday job.
In a post-Covid UK, the debate has started about what value a degree has linked to the debt it creates.The average salary in 1973 was around £2,200, the year I got my foot on the property ladder. I was 22 and that property was a two-bed bungalow in Eastwood, Essex, everyone remembers that first house you brought.
It cost £11,500, (in 2019 the then owner sold for £310,000). I had saved a deposit, was relatively well-paid working for the airline BOAC, BA’s forerunner, and could comfortably afford my £10,000 Halifax mortgage.
Fast forward to today and I am mortgage free, my fiscal moans focus on how low interest rates are for my savings.
We hear about the terrible impact of inflation on hard pressed families, energy price and interest rate hikes and the poverty that it supposedly produces.
But let’s get real. Poverty of any type has been seriously recalibrated. Firstly, by millennials and even more so now by ‘Gen Z’. A major ‘poverty’ cause today is that what was seen as luxuries in my younger days is seen as life’s necessities today.
Those gym memberships, exotic foreign holidays, tattoos, new cars, designer somethings, tablets, phones, widescreen TVs; all fuelled by a combination of decent incomes and an abundance of low or nil cost credit is what I think Allsopp is thinking about.
Taxing times
Even the hardest pressed today seem to be able to afford some or all the above.
The amount of mortgage you could get in the early 1970’s would be based on a multiple of 2.5 times your annual salary. Today that could be 6 times or more depending on your lenders perception of your lifestyle and what interest rate fix you opted for.
In the 1970s, the highest rate of income tax on earned income was 83 per cent. Margaret Thatcher's government reduced it to 60 per cent in 1980 and 40 per cent in 1989
But on top of that, here is what else we had to contend with through the late seventies, early eighties and nineties. Just imagine this happening today.
The Thatcher government raised bank base interest rates in 1979 to 17 per cent. A new mortgage that year saw an interest rate of 15 per cent. Just imagine how that would have impacted on your lifestyle lattes, latest iPhone, other ‘tech’ acquisitions and yoga classes.
And then came 16th September 1982, Black Wednesday. A crash of the pound forced John Major’s Conservative government to exit the European Exchange Rate Mechanism.
That day saw the then chancellor Norman Lamont take the base interest rate from 10 per cent to 12 per cent at 10.30am, later that day rates rose further to to 15 per cent. The next day, panic over, the government reduced back to the original rate of 10 per cent.
The cost of servicing a £250,000 repayment mortgage over 25 years that day would have increased to some £3,595pm at 17 per cent, (assuming that base rate of 15 per cent).
Mortgage rates of just 2 per cent today would see that cost be a trifling £1060pm.
Crunching the numbers
The shock it caused cannot be fully appreciated even in retrospect, but despite the pips being squeaked, the nation just got on with it. There was no mention of poverty. Anger maybe.
Foodbanks did not suddenly pop up to take the strain, the Chancellor was not handing out cash buffers to all and sundry and there were no complaints of hardship such as you hear today, despite the huge servicing costs of a mortgage then or about not getting on the housing ladder.
In 1982 the UK average salary was around £7,500. In 2021, the average salary for workers in London was £39,700, in the North East £27,500, not exactly a levelling up.
Anyone who came of age in the late 1960’s will be familiar with the introduction of credit cards. Barclaycard was the first in the UK I recall.
Most people who were born in the 1950’s and grew up in that era will have had a credit card. What a lot of people don’t know is that before credit cards became part and parcel of our daily lives, most people had very little access to credit at all.
In 1973, to buy a car you could not have a PCP, it was the good old ‘never- never’ straightforward HP with decent deposit. If you wanted a household appliance such as a colour TV, video, washing machine most would rent. Credit card limits were very low, interest free loans were not even heard of.
31 March 1980 saw the national debt reach some £95.6 billion, in today's terms that would be £430bn.
To service a mortgage today, the cost has never been so low.The total credit card debt alone in the UK was £56.5 billion in August 2021, down a lot on the 2020 figure of £72.2bn, a Covid plus. The average credit card debt per household was £2,033 as of August 2021. That figure represents an average of £1,068 per adult.
The average savings per person in the UK stood at £9,633 in 2020. According to Raisin's survey of more than 2,000 Brits, the total average amount of savings in the UK was £35,361.09; however, the average, i.e. excluding the biggest and lowest savers, amounted to slightly over £9,000 per person.
That same survey noted that “almost 1 in 5 of those aged 55 and over, in or approaching retirement age has less than £1,000 in savings.
Some complained that Allsopp had no idea of the reality of the situation.
Some agreed wholeheartedly with her comments. I suspect many reading this may find it impossible to believe that anyone could ever afford to buy a house back in the day. Saving a deposit was as hard then as it is now. But to service a mortgage today, the cost has never been so low.
Her article notes that the “average deposit for a first-time buyer in 2022 is £59,000, according to Halifax. To save that, you would need to forgo your Starbucks latte, Netflix subscription, gym membership and easyJet flights for quite a while to be fair!
She could have added University fees, they represent a significant debt that is also factored into mortgage affordability? In a post-Covid UK, the debate has started about what value a degree has linked to the debt it creates.
By contrast, in the US, most students seem to get jobs to help fund their degree! In the UK a third of students are not even working part time, in or out of term time, to supplement student loans.
But what is possible today for so many young, Gen Z first-time-buyers is a load more support than I ever had. That includes all sorts of help from Right to Buy schemes, equity share, housing association, affordable homes, and the bank of Mum and Dad, all on top of such low rates of interest.
How much more must be given to young people today when some simple self-help, restraint and a work ethic could do just as well?
After all, if you have earned and saved that deposit money it will actually mean something more surely? You will have created a sense of value, something Allsopp did not speak about?
Derek Bradley is the founder of Panacea Adviser
