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Needy mid-ranking bankers who can’t afford to live in London could be big users of Help to Buy

not-for-sale

Pity the mid-ranking banker on an income of less than £500k ($800k) – he (or she) often can’t afford to buy a house in London. And if he/she does have a house in London, an increasing proportion of his income is eaten up by mortgage payments.

“Our mid-ranking people are struggling,” said the head of HR at one British bank, speaking on condition of anonymity. “They’re in a difficult position – they’ve got families and are targeting a specific lifestyle which is increasingly unaffordable for them. They’re quite vocal about it, especially at compensation time – if you’re earning less than £500k, it’s very difficult to buy a house in central London and to pay school fees for several children.”

While the U.S. housing market plummeted and is mounting a nascent recovery, the UK housing bubble never really popped. As the Economist pointed out last month, the average house price-to-earnings ratio in London remains far above historic norms. The UK government stands accused of pushing prices even higher still through its controversial Help to Buy Scheme – launched today, under which it will underwrite £130bn of mortgages over the next three years.

“People here are already carrying a lot more debt than they used to,” said a senior manager at one European investment bank in London – again speaking off the record. “A member of my team has a £750k mortgage on his house, which is a huge burden for him. A lot of other mid-ranking people here can’t afford to live in Zone 1 and are having to move out to Zones 3 or 4 – which is difficult when you’re a VP-level banker working very long hours.”

As for other Londoners, the crunch point reportedly comes when bankers hit their early 30s and start having families. Until then, they’re happy to live in house shares or small flats conveniently situated in central London. Once they have families, they need larger London properties and aspire to pay private school fees. “People suddenly see their disposable income pared down considerably,” said the European banker. Traditionally, the head of HR says senior bankers would have moved their wives and children into the cheaper British countryside and bought themselves a weekday pied-a-terre so that they could live in London. Now, however, she suggests that bankers’ wives often have jobs of their own and want to continue living in the city – even if they’re not contributing much towards the cost of doing so.

It doesn’t help that bankers took on large mortgages several years ago in the expectation that their pay would keep rising. “My guy who borrowed £750k has seen his compensation coming down year-after-year. It’s very hard for him – he’s spending a significant proportion of his income servicing that debt,” said the senior banker we spoke to.

Sandy Chen, a banking researcher at Cenkos, said financial services professionals could be among the more enthusiastic users of the government’s new Help to Buy Scheme. The scheme places no ceiling on the incomes of people who can use it, and allows borrowers to take out 95% loan-to-value mortgages on properties worth up to £600k. Mortgages offered under the scheme are currently available at fixed rates of 4.99% to 5.49%. Although this makes them among the more costly mortgages on offer in the UK market, individuals using the government scheme will be able to leverage themselves up and take out larger loans.

“If you’re thinking about taking out a mortgage under Help to Buy, it’s really a question of whether you want to go from a 75% loan-to-value mortgage to a 95% loan-to-value mortgage,” says Chen. “There are a lot of speculative types among bankers, so you’d expect this will be very popular with them.”

   

 

Comments (42)

Comments
  1. “He or she often can’t afford to buy a house in London”? This is an outright lie. Why don’t you parasites start living in the real world instead of feeling sorry for yourselves?

  2. This article is wrong on so many levels. How do these bankers think key workers such as nurses survive, having to work long hours and travel beyond Zone 1? What planet are these people on? Madcap idea to lend that much money

  3. AHAHAHAAAH. My god, there’s a whole shipment of tiny violins here, enough for a microscopic orchestra.

    Seriously, though, anyone who complains about how hard it is to live on £500k is utterly contemptible, and deserves much worse than the petty rich-person-whines so tragically detailed above. I sincerely wish all the worst for you.

  4. oh what toss,
    get a grip you whining idiots.

  5. This is the most ridiculous article I have ever read. It could be on the Daily Mash or The Onion without any editing at all. Pity the poor bankers earning half a million pounds? Who can’t afford private school fees for their multiple children and family home in Zone 1? And then the wives…. the wives! It’s a given in this article that there are no female bankers, or male bankers with successful ambitious wives earning salaries of their own. No, Sarah Butcher parrots the view that “bankers wives” are passive beings, moved around the country at their husbands will, and “not contributing much” towards the family pay-packet.

    Sarah, next time you write an article, consider having a think for more than 30 seconds first.

  6. This is a spoof, right?

  7. ah bless them , half a million a year salary …………..how ever could one survive !!!!!!!!!!!!!!!!

  8. ah i feel so sorry for them ,
    like how could anyone survive on a 500k a year !!!!!!!!!!!!!!

  9. So what? This is how it is. Try working from 7am to 10pm and living outside zone 2. It kills. Try living in zone 1 with an affordable mortgage. Nope.

  10. Don’t worry poor bankers – it might take a bit of time, but thats why HS2 is being built, especially for you.

    You’ll be able to live in Birmingham whilst still maintain a job in London, after all, taking 20 minutes of a train journey really only benefits one class of people – those who have to get into the city by 9am. The average tourist or day tripper couldn’t give a hoot about saving 20 minutes on a 1 hour journey on a Saturday afternoon or Tuesday lunchtime.

    Think of all that lovely Brummie property waiting to be snapped up.

    You’re welcome bankers.

  11. Zone 2 and 3. That’s the badlands, No wonder Johnson and the govt and trying to drive out the poor.

  12. What a horrible, horrible bunch of people…

    “They’re in a difficult position – they’ve got families and are targeting a specific lifestyle which is increasingly unaffordable for them. They’re quite vocal about it, especially at compensation time”

    I hope they get a whole lot of bad luck, like the rest of us

    poorpoorbankers Reply
     
  13. Truly a bunch of bankers

  14. I’m not surprised that Help to Buy is going to be used in this way. The Tory party is after all tied to banking tightly. They’ve already punished the poor, disadvantaged and disabled for the negligence in the banking sector that lead to the recession and austerity measures, it seems only logical that the tax payer helping them buy their £1m+ properties is the next step.

  15. My heart pumps pish for you! You poor souls, if you didn’t drink or snort most of your salary then perhaps you could get on the property ladder. Was the idea of this story to try and evoke some sympathy? Looking at the comments so for then it failed miserably. Get into the real world you cretinous bunch of wasters!!

  16. Sarah – can we clarify if this is an early/late April Fools? Lefty press likely to go mad if this is a genuine article.

  17. @SpoofArticle – It’s not a spoof – the comments in the article are genuine (and yes, surprising). Admittedly, the headline is provocative though.

  18. Fact is no one can afford to live in central London now

  19. Did you notice that “my man”‘s £750 grand mortgage is just over his yearly salary. Where is my 30K house, be it in zone4? Oh wait, we have to factor the obligatory “lifestyle”.

  20. SO, pay the mortgage and send them to the local school, like everybody else. I know my mortgage was bigger than my annual pay, and my husband’s and mine together.

  21. FAO Sarah Butcher: “provocative” is not a synonym for “dishonest”.

  22. “UK housing bubble?” what? It’s a London housing bubble. There are bits of the UK not in London you know

    KK – where is this 30K house in zone 4? Are you missing a 0 there? I’ve never seen a house in zone 4 for 30K

  23. I think the lesson here is, by all means live in that bubble where Zone 1 is a realistic place to look for a house, and private education is a given, but don’t come crying to people who have a grip on actual reality, and deal with real problems when that bubble bursts.

  24. It’s called sarcasm. I also work very long hours in Central London, on a supposedly “living” wage.

  25. So if I was to get a £750k mortgage today on a £900k pad, I’d be paying around £3750/month. Let’s be generous to the man and say he got it when interest rates were higher £4k/month.

    Take home pay on £500k salary = over £20k/month.

    What the hell’s he doing with the other £15k?

    This article is beyond stupid.

    LightingMonkey Reply
     
  26. @LightingMonkey – good point. But I don’t know exactly how much the guy with the 750k mortgage was earning – his boss didn’t say. It’s not clear that he was on 500k.

  27. Oh dear. Simple arithmetic has failed me in my self-righteous rage.

    LightingMonkey Reply
     
  28. @sarah – ok, and it does say those earning less than £500k. However I think if that example is going to be included then you have to assume that they’re earning in that ballpark, otherwise it’s pointless.

    Even at £400k the take home is circa £18k/month, at £250k it’s £12k/month.

    LightingMonkey Reply
     
  29. @LightingMonkey – I suspect the £750k example applied to a VP who’s probably earning a salary of £120k and a bonus of maybe £100k. His/her mortgage repayments would be £4.6k a month on an after-tax income of £10k. At that point, I guess things could become tight if you’re also paying £2k+ a month on school fees/childcare. And yes – before anyone else says – there are obviously options to downsize/change schools.

  30. This article makes little sense. Anyone with half a brain can survive in London on 100k with no problems at all. If you can’t figure that out, then I very much doubt you’ll be earning upwards of 100k in the first place anyway.

    Attention seeking journalism!

  31. This is a joke, right?
    No?
    What an utterly depressing piece of ‘journalism”.
    The thought of the left wing press getting hold of this story horrified one of your posters. Rightly so.
    Does the fact that you’ve chosen to work in the financial industry, chosen to work from 7.00am till 10.00pm every day mean that you’re entitled to live in Zone 1?
    Of course not.
    Move to Dulwich, send little Hugo to a State school. Buy a bike, get fit and save time too.
    While you’re at the state school talk to one of the teachers.
    Ask them how they manage to live in Zones three and four, do a job that’s probably equally as demanding as yours, far more necessary to society but for a tenth of the salary.
    The guy with the 750k mortgage will have to move to cut his costs. Big deal. Move into the real world.

  32. @Sarah – Things become tight when you’ve only got £3k+ left over after paying your mortgage and childcare? Not counting whatever income the wife brings in (if the children are in full time school or childcare)… Oh to have those problems…

  33. @Charlie
    You give too much credit to those earning over $100k. Your statement is idealistic.

  34. This article is complete nonsense – help to buy only applies on homes up to £600k, if you were earning even half of £500k p.a. then I’m sure you’d be able to cobble together at least a 10% deposit!

  35. After reading this article, I have decided to go short London housing and long guillotines.

  36. £500k salary at VP level??? I’d like to know which bank pays that! Many MD’s don’t make that much so I think you got your figures wrong by a factor of 4!

  37. if i can afford to pay a mortgage in london (ok so in zone 4) whilst earning LESS THAN 10K a year then then anyone earning 500,250,100 even 50k can do the same. wouldn’t we all like to live in zone 1?! i don’t live in zone 4 by choice, i live here becuase i couldn’t afford anything closer, so what if they have to live in zone 2 (my heart bleeds for them!) they should just be thankful enough that they CAN afford to buy somewhere as most people who live in london regardless of their zone CAN’T!

  38. Poor things. What with the price of champagne and oysters these days it must be so hard to scrape a few million together when the Ferrari needs gold-plating.

  39. Stop working for the institutions that are screwing over the rest of us… then somebody somewhere might have some sympathy.

  40. 500k at VP level? Wow, wrong by a factor of 4 or 5 unless in a very very very commission orientated role.

    Article is awful. Most Dir/MDs I know live out south, cheaper, fast trains, good schools.

  41. It’s a spiritual problem really…they can’t afford the “lifestyle they prefer”. well, why do they prefer that lifestyle? they prefer that lifestyle because they are bereft of any real happiness and need constant reassurance, social and communal prestige, and endless and constant “experiences”, like fine wine, fine restaurants, happening bars, etc etc etc to avoid feeling bored and to avoid feeling like they are “missing out”, of coruse every day counts in the mad scrabble of a life that is 69.5 years old (plus or minus 10 years). Living in the suburbs is on the contrary seen as dull, a wasteland, a hell, berefit of class, and even more importantly bereft of any excitement or interest. Stop searching for excitement all the goddamn time, problem solved.

  42. @axis:
    “500k at VP level? Wow, wrong by a factor of 4 or 5 unless in a very very very commission orientated role”

    I assume the article is written about front office employees. 500k total comp at VP is very feasible as front office. If you’re in back/middle office (or any support function) then yes, it will be a fraction of that. But trust me, the number is very very feasible.

    To all the others – its very easy to say a person earning 500k is stupid to think she/he can’t live in london…but do the maths:

    $500k total comp…deduct $220k (avg VP basic), leaving $280k as a bonus. Now, take away, say, 30% as deferred stock (this is conservative – sometimes >50% can be stock), leaving ~$195k cash. FX that into sterling, giving you £118k GBP. Now [roughly] divide that by two to see how much cash hits your account…£59k.

    Yes, £59k is a lot of money by anyones standards. But when you’ve worked hard, made millions for your firm and are paid a “$500k total comp” you will want a certain life-style (that is, a nice house), to have only £59k hit your account after being told you’re being paid half a million dollars is rather annoying, to say the least.

    That said, a £750k mortgage on a ~£130k basic (~£6.5k pcm) is very very easily managable so I don’t fully agree with the article.

    I’m not defending the above article, just merely highlighting that its very easy to be jealous (and lets face it, the above comments are from jealous people who are clearly not making that sort of money) of people making money which to the masses seems insane, but take a step back and think about the actual economics of how they get paid…

    If you were making “$500k total comp”, would you be living in the same house in zone 4 that you would live in if you were making £50k? Maybe. But more likely not.

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