My day-job can make a person rather blasé about large numbers. Which, when I stop and think about it, is worrying because those large numbers I deal with represent money—in many cases more money than most people would ever encounter in their lives.
I’ll give you an example. Last year, I sent out the funds for house purchase which was less than £100,000. Now that was really very unusual in 2017 and still is now but my first thought was, That’s not a lot, they won’t be getting much of a house for that.
My second thought was, Unless it’s up north somewhere like Sunderland. Which is just mean so let’s pretend I didn’t think that particular thought.
That’s not a lot.
That was my first thought. But let’s be honest, whichever way you look at it, One Hundred Thousand Pounds is a lot of money.
The average yearly wage in the UK is somewhere between £25,000 and £30,000 depending on which measure you use. Therefore it would take up to four years for an “average” person to earn £100,000. And since those are pre-tax salaries, you can tack on another year and a half to ‘take home’ £100,000.
And yet, the property market in the part of the UK my firm deals with is such that £100,000 isn’t a lot of money in that context.
To put in further context, back in 2000, Mrs Nobbs an I bought our first home together and paid £75,000 for it on a £70,000 mortgage.
17 years later, I can’t remember the last time I processed a house purchase with a mortgage that ‘low’.
What sparked this line of thought is that today I processed a payment of Stamp Duty to the Government on behalf of one of our clients. That’s the tax you pay when you buy a house in the UK. The value of this payment was over £80,000.
That’s more than I paid for my first house! And as I processed the payment, I thought, That’s criminal, you can buy a house for that.
Of course, going back to my thoughts from the start of this piece, it wouldn’t be much of a house. Probably a flat or maisonette rather than a house. It still seems strange though that someone is paying tax on a property purchase that is enough to purchase another property with.
So how much was the house worth that this £80,000 tax was paid on?
About £1.3 Million – give or take.
And that’s another thing about getting so blasé about large numbers. I remember processing the payment for this purchase and casually referring to it as “just over” a million.
It’s three hundred thousand pounds over!
And you can still buy a perfectly good house in this part of the country for £300,000. Hell, I think my current home is worth somewhere between three hundred and three hundred and fifty thousand.
But I still think of it as “just over” a million.
Or should I say, blasé?
There’s another purchase I remember from within the past twelve months which gave me pause for thought. The purchase price £2,000,000 (or thereabouts) and it was being bought with a mortgage loan of £1,000,000.
So these buyers had capital of about £1,000,000 to invest in a property, but clearly couldn’t find anything at that price that suited their needs.
A £1,000,000 house wasn’t good enough for them?
When dealing with the payments on that transaction, my first thought was obviously, Why not just buy a Million pound house.
My second thought was, How much are the repayments on a mortgage that big?
So naturally I looked it up and it’s going to be in the order of £4,000 a month for a 25-year mortgage. And you’ll be paying an additional £110 per month each time the interest rates go up by 0.25% – so it’s probably a good idea to get it on a long term fixed rate deal if you can.
It boggles the mind to think someone would consider repayments of that size for the sake of buying a £2,000,000 house rather than £1,000,000.
And do you remember the stamp duty I mentioned above and how it might be enough to buy a house on its own? Well, with the way Stamp Duty is calculated, the difference between the Duty on a one-million-pound house and a two-million-pound house, is about £100,000.
You could buy the million-pound house and then a flat somewhere as a rental with the money you saved on Stamp Duty, and not have a massive mortgage hanging around your neck, or you can buy that two-million-pound house?
I know which I’d have done in that position.