Brits are spending nearly 48% on housing: is this the end of personal wealth?

With nearly half of Brits’ incomes going on housing, is there really any room for wealth creation? Sandy Kenrick takes a closer look.

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For years, we’ve been told that cancelling our Netflix subscription or flaking out on coffee dates with our friends would make us rich by the time we retire. Well, it turns out that online movies and skinny decafs were just a tiny part of the dwindling wealth problem. With recent research showing that the average Brit spends nearly half of their earnings on housing costs, it’s clear that more drastic action may be needed.

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Almost half of Brits’ incomes go on housing

There are a few principles that financial pundits around the world agree on. For instance, the debt-to-income ratio. Housing costs, which include your mortgage payment or rent, shouldn’t be more than 30% of your income. A car shouldn’t be more than 25%, and it’s even better if that includes insurance.

For Brits, however, the 30% debt-to-income ratio for housing seems like a fairytale. A study by NimbleFins reveals that on average, Brits spend nearly 48% of their income on housing. This leaves them with very little wiggle room for wealth creation. In fact, after transport, fuel, groceries and utilities, there’s barely anything left for saving and investments.

Is there a silver lining for homeowners?

It’s not always easy to find a property that suits your pocket, can accommodate your family and is within a fair distance of your workplace. Property prices in the UK have also soared to record highs thanks to the imbalance of supply and demand and a lack of affordable housing. 

But there’s hope. Before the pandemic, measures were put in place that removed the council cap for building new houses. While the pandemic slowed things down, the plans are already in motion for more affordable housing.

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What to do while you wait for more housing options

Realistically, it’s going to be years before the housing crisis in the UK is resolved. Until then, it’s a matter of tweaking your finances in other ways to build wealth.

  • Increase your income: If you can’t reduce your property costs by moving into a more affordable home, then it’s time to tweak the other end of the ratio, which is your income. You could ask for a raise, take on a few extra hours, or start up your own side hustle to boost your income. You may even want to consider changing your job, especially if the current one doesn’t provide much room for growth.
  • Decrease other large expenses: Your quickest wins are making sure that your highest month-to-month costs are reduced to save more. This means trading in that luxury, high-performance car for a more economical ride. This can address your car and fuel bills. If you’re not in a position to trade in, consider carpooling to have a colleague help with those fuel and parking costs.
  • Move your high-cost credit to lower-interest products: Credit card debt can be a big budget killer, which makes the case for moving it over to a lower interest product. Keep an eye out for credit cards that offer a 0% interest period on balance transfers. Make sure to choose a card that offers a long 0% period and low or no balance transfer fees.
  • Reduce costs: It’s time to have a look at interest rates, subscription costs, bank fees, and even membership fees. While cancelling some of these might not be possible, it’s worth asking for a reduction in costs based on your relationship with the provider.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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