Showing posts with label homeowner. Show all posts
Showing posts with label homeowner. Show all posts

Thursday, 26 October 2023

27,931 hours of minimum wage work to buy the average home

It was recently reported that average pay growth had risen above inflation for the first time in almost two years, with wages up an annual rate of 7.8% between June and August, whilst annual inflation for August stood at 6.7%. 

For those earning the minimum wage though the growth has been even better these past 12 months. The minimum wage was set at £10.42 per hour (for over 25’s) in April, which was a 9.7% increase on the previous level. 

Nevertheless, with the average property in the UK selling for £291,044, it would take a minimum wage earner 27,931 hours of work to buy that average home outright. That’s the equivalent of working for around 13.5 years based on a 40-hour working week (ignoring tax and not spending any money on, say, living…).

When the minimum wage was introduced in April 1999 (at a rate of £3.60 per hour for over 22-year-olds) the average home in the UK sold for just £75,995. That would have meant a minimum wage earner needed to work for 21,110 hours to afford the average home in 1999 using the same calculation (a little over 10 work years). So, whilst the minimum wage has increased by 189% since it was introduced, the average property in the UK is still less affordable now having increased by an inflation-busting 283%! 


Interestingly though, the greatest increase in property prices came immediately after the minimum wage was introduced. In fact, when the minimum wage was increased for the first time in October 2000 (by a measly 2.8%), house prices had already leapt by 23%! Only once out of the first eight times that the minimum wage was raised did it increase by more than the house price growth for the same period, whereas since then it’s swung the other way; with nine minimum wage increases being above house price inflation, and seven falling short of this.

I was quite surprised to see that in the past ten years the minimum wage has in fact very nearly kept up with house prices; since 2013 the minimum wage has increased by 65% (from £6.31ph to £10.42ph), whilst house prices have increased by 66% (from £175,378 to £291,044). Even more of a surprise was that in the last five years the minimum wage has actually grown more than house prices, with the minimum wage increasing by 33% versus a 29% increase in property prices.
With house prices expected to stall in the short-term and overall inflation (and political posturing) meaning the minimum wage seemingly only goes in one direction (up), it suggests housing may become a little more affordable for the lowest earners. A rise in the minimum wage could of course have the effect of flaming inflation, whilst also underpinning house prices against any substantial falls.

So, has the minimum wage helped wannabe homeowners? Well, unless it’s a coincidence, the introduction of the minimum wage coincided with a strong increase in house prices. The 2008/09 financial crisis brought things back into line somewhat and since then those on minimum wage haven’t actually lost out in the fight to keep up with house prices.

The problem is that buying a property has largely been out of reach for those on the lowest incomes in the past, which continues to be the case now. The income affordability requirements from lenders mean access to mortgages can be difficult, and that’s before saving for the deposit and other costs associated with buying. 







Thursday, 8 June 2023

How does stamp duty work?

I made one of my former landlords a five-figure sum this week, just by knowing a little about stamp duty. With that in mind, I thought I’d provide an overview of how stamp duty is calculated and, perhaps more interestingly, how you might be able to claim some of it back!

You usually pay Stamp Duty Land Tax (SDLT) on increasing portions of the property price when you buy a residential property:
Some exemptions and reliefs apply; most notably for first-time buyers, whereby the first £425,000 is subject to no stamp duty (assuming the purchase price is below £625,000).

Unfortunately for many since April 2016 though, if buying a new property means you’ll own more than one property (anywhere in the world) and you have not sold your current main residence, then you must pay a further 3% of the purchase price as additional SDLT. Most commonly this will apply to those buying a second home or a buy-to-let property, but others can get caught out by the surcharge too. In short, if you have not sold your main residence on the day you complete your new purchase, you’ll have to pay the extra 3%.
This is clearly a great financial advantage to first-time buyers, but a deterrent to those wanting to invest in buy-to-let property. This is just one of the reasons why landlords sold 35,000 more properties than they bought in 2022, for which the supply/demand imbalance is being seen through rapidly rising rents.

Crucially for some though, it is possible to reclaim the 3% SDLT surcharge in certain circumstances. The most common (but still not widely known) is if you sell your former main residence within three years of having paid the additional SDLT.

So, when I saw the previous home of a former landlord of mine pop up for sale just two and a half years after they had moved, I gave them a quick call for a catch-up and mentioned the substantial refund due to them…which they had no idea about! I knew when they had purchased their new property and duly moved in that they had kept their old home (initially so a family member could live in it). This would have meant paying the 3% surcharge on their new property purchase as it meant they then owned more than one property and were not selling their former main residence. Having sold their old home within three years of this though, they can now claim back the additional 3% SDLT they had previously paid.

Many see stamp duty as an archaic and unjust tax grab that should either be reformed or scrapped altogether. It raises approximately £10 billion for the Treasury every year though, so a fair chunk of change would need to be found elsewhere to balance the books. With such large sums at stake though, it definitely pays to have a little knowledge on such matters.


If you are looking for an agent that is well established, professional and communicative in Chichester, then contact us to find out how we can get the best out of your investment property.

E-mail me on clive@crjlettings.co.uk or call 01243 624 599.

Don't forget to visit the links below to view my previous buy-to-let deals and Chichester Property News articles:

c/o CRJ Lettings, 30B Southgate, Chichester, West Sussex, PO19 1DP



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