The London property ladder: are you kidding me?

Londoners earn more than citizens in other parts of the United Kingdom. And they spend a lot of time either moaning about how expensive property is in the capital (if they don’t own) or patting themselves on the back for being such fabulous investors (if they do own).

I earn more than the average Londoner and have done for some time. It still took some years of being super-frugal until I had a deposit large enough to lever myself to the hilt and buy a studio flat near Kings Cross when it was still all junkies, gangs and prostitutes. Given that property is more expensive than ever I wondered how different the savings calculus is for younger well-paid people today. (You know where this is going, but I’ve got some cool charts.)

The young well-paid people I have in mind just about sneak into the higher rate tax band. As such, they earn notably more than the median Londoner. And as a measure as to how low property aspirations are, I’m not going to pitch this young well-paid Londoner against the median London property. We all know that this wouldn’t be a fair fight and they’d never stand a chance. Instead I’m going to be pitching them against the property priced cheaper than 75% of all other London property (priced, incidentally, in line with my first flat).

I’ve got data only going back to 1997, which is fine for my purposes as that was the year I started earning.

The result is this graphic below:

London Savings

This shows, for a given year from which a higher rate taxpayer salary was drawn, when a lower quartile London property could be purchased for a given post-income tax savings rate (assuming that a 4X gross salary mortgage is also obtainable and obtained). So someone who started work in 1997 on a higher rate income (no, I didn’t get a higher rate salary in my first job), and who put aside 20% of their post-tax income could have bought a lower quartile priced London property after 12 years of saving. If they had put aside 25% of their post-tax income they could have had the keys after only four years. If they had saved 40% they could have moved in after only one year on the job.

I hope that by colour-coding it you will see quickly how things have changed over time. It basically backs up what any idiot knows: London is increasingly unaffordable not only for ordinary people, but also for higher earners.

Another way of showing a subset of the same data is to chart the number of years for which a higher rate taxpayer needs to save 30% of their post-tax income before the first opportunity arose to leverage themselves 4X into a lower quartile priced London property. I’ve slightly cheated on that last data point: the 2004 entrant still can’t quite afford to buy, but for the sake of the chart I’ve given them the deeds.

number of years London

So if you are lucky enough to own and you hear younger people complain about London property prices, it might be worth reflecting that they might genuinely have a harder time than you. And that you own your London home either because you are actually quite rich, quite old, or most likely both. The London property ladder now misses several rungs.


6 thoughts on “The London property ladder: are you kidding me?

    • Time required to get buy on the basis that a 20% deposit is needed and 4X income mortgage is taken out, depending on different level of post-tax saving for someone who just about makes it into the higher tax band.


  1. I’m not sure how much difference this makes, but a 4X income mortgage costs a lot less now than it would for someone who bought in 1996. Of course, you got somewhere better for your 4X income in 1996 than now, so I don’t argue with your basic premise.


  2. I’m not going to pitch this young well-paid Londoner against the median London property. We all know that this wouldn’t be a fair fight and they’d never stand a chance.

    So foreigners (e.g., Saudi) own a lot of London property, right? This is what I read in newspapers.


  3. Pingback: London property boom built on dirty money | Rebecca Villa's Blog

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