£300,000 - too poor to afford nursery fees?

[Griffin NoName]

I am totally outraged. Tomorrow in the Budget, George Osborne will announce £1,200 to be given to all families who earn £300,000 or less to help pay for their under 5's children's child care fees. To me £300,000 is a huge amount to earn. Cutting welfare benefits and giving the money to such people is disgusting. It is also being couched in the terms of rewarding those who work hard and contribiute, the usual tag which really means the poor, and unemployed and sick and disabled are scroungers. I could personally cut this abhorrent man into a thousand pieces, 300,000 perhaps. He is a disgrace to this country.

Incidentally, I worked when my children were young, paying MORE than my salary to child care fees. I never considered this as a raw deal as I wanted to keep my career going, so Ok it cost me to do so, but I still got a lot out of it. Why do people expect it to be easy?

[Sibling Zono (anon1mat0)]

£100,000 sounds more reasonable and fiscally responsible, the question is if it will cover the ones earning from £1 to £99,999.99 too, or there is a cut off somewhere? Do the unemployed receive the same benefit?

Sadly if you want to give something to the ones making less (or nothing) the ones on top usually take a cut somewhere.

Then again poor people contribute nothing to society but there is no public appetite for extermination camps, yet, so demonize them for now until there is enough public sentiment against them and then people will rationalize the decision saying that they are in a better place now...

[pieces o nine]

These kinds of stories just make me crazy.
I think that's what "they" want -- to wear down those who object to illogic and flagrant unfairness, and then make things very nice for the top.

[Sibling DavidH]

Even fascist David must a dmit that £300,000 is a bit high to be receiving state aid.  Mind you, with today's house-prices even average people are taking out huge mortgages to buy fairly modest homes in some areas, so I wouldn't care to judge where the line should be fairly drawn.

[Sibling Zono (anon1mat0)]

It always depends on the market but still, if you are living in the posh part of London (or Paris, or Tokyo, or Moscow, or Manhattan...) it means that you consciously chose to be there and pay the price. If the poor are constantly asked to take responsibility for themselves shouldn't we ask the same to the upper middle class?

_{(I've had plenty of opportunities to live beyond my means, a bigger house, a more expensive car, etc, etc, but I'm not an idiot, nor do I feel the need to show off to my neighbors and coworkers).}

[Griffin NoName]

There is a problem with London specifically. Property is too expensive for people to buy at reasonable prices, so a high income is needed, as pointed out above. But buying outside London, to find cheaper properties, when working in London, incurs massive rail charges so one is not necessarily any better off. My prophecy is that London is going to end up unserviced: no street cleaners, no rubbish collections, etc (ie. low paid work) and eventually become uninhabitable. I totally agree with Zono's point about responsibility. Spending beyond one's necessities (which may include childcare) is foolish. If ten people to one room is good enough for the poor, why not the wealthy middle class?

[Aggie]

^, ^^ and

Even fascist David must a dmit that £300,000 is a bit high to be receiving state aid.  Mind you, with today's house-prices even average people are taking out huge mortgages to buy fairly modest homes in some areas, so I wouldn't care to judge where the line should be fairly drawn.

With respect to those falling into the higher end of this range (i.e. Yuppies with household incomes even remotely approaching £300,000):  Rent

I personally do not buy into the (accurate for the previous generation) paradigm that one should own one's accommodation no matter what. Everyone needs to run the math on this individually according to their own financial situation, but I'm convinced that unless one has a very substantial down payment (~50% or better), it may not make financial sense to buy a house or flat. If the sum of your property taxes, home repair/maintenance and interest-paid-on-loan is more than your rent, you'd be better off just renting and saving the remainder in an interest-producing account until you have a larger down payment saved up. Personally, I'd rather see rent money go to a *real person* (as is the case when renting most houses and a fair proportion of upscale flats, as opposed to mass rental properties) than to have the majority of my mortgage payment go to the #_(%ing banks.    IMHO, until you are paying less to the bank (excluding your payment-on-principal) each month than you'd be paying for rent, there's no motivation to buy.

Also, in Canada at least, urban strata/condo fees for many apartments, townhouses and condos are a substantial portion of market rent prices. Even if you own outright and don't carry a mortgage, you may be paying >30% of what the tenant next door pays for their rent, each and every month, in perpetuity. At my last place in Calgary, I had a notice slipped under the door (to inform the owners in the building) detailing an increase in condo fees.  The fees that the owner was paying per month were literally 1/3 of my rent. In that context, I was getting a bargain on my rent compared to trying to own a similar unit. The other key point here is that condo fees (or your maintenance budget) may increase over time and be subject to additional extraordinary costs for things like roof repair or cleanup after a plumbing failure.

To me, the calculations work like this (average monthly or annually over the expected term of ownership):  

<sub>Cost of ownership = (Mortgage_payment - Payment_on_principal) + condo/strata_fee + property_tax + estimated_repair&maintenance + real_estate_fees*

Cost of rent = Rent - interest_on_savings</sub>

A heavily-financed mortgage does make sense for people who are not capable of saving responsibly towards a down payment; if you know that you'll pish away whatever money is left over after paying your monthly bills, then you're probably better off with the forced savings plan of a mortgage. Also, there is the reasonable argument that one's house, no matter how heavily mortgaged, is an investment that will increase over time. If you're willing to stay in a particular dwelling unit for >10 years to ride out fluctuations in the market, there is a point to be made here.  However, a saved down payment can also be a reasonable investment if handled carefully.  Over the long term, I'll concede that real estate ownership is probably a safer investment than continuing to rent while investing a similar value of money.  

Personally, freedom and mobility also play a factor in my bias...  cash is portable and facilitates life changes much better than home ownership. As a divorcee, I highly appreciated the fact that we were not homeowners when negotiating the split.  With cash, you just cut it down the middle and go.  With a heavily-financed home, a separating couple must either sell under duress and attempt to pay off the principal (provided the market hasn't dropped) or one of the parties must attempt to pay out the other and subsequently shoulder an even larger debt load.

Even when a stable family unit is considered, liquidity may be relevant; it may make more sense for a couple planning to start a family to continue renting a modest dwelling while saving rather than buy a small 'starter home' that will ultimately not meet their needs as the children grow up and need more space. *Real estate commissions may be a significant factor in short-term home ownership for people who buy and sell regularly.

Much of it depends on local price-to-rent ratios (i.e. how much a house costs compared to annual rent). The side effect of the recent surge in real estate prices is that the P:R has increased dramatically, especially in 'expensive' cities. The established wisdom for Central London specifically indicates that larger, more expensive properties display greater P:R ratios than more modest dwellings, so for our 'poor' Yuppie scum persons with £300,000 incomes, there's an even larger incentive to rent rather than buy.

All in all, the continued pumping of 'Thou Shalt Own Thy Home No Matter What' message is another great way to shuffle money from the fabled middle-class to our banking overlords.  




End note: At the P:R ratios of previous generations, ownership made much more sense, and the property-price surges of the past few decades have rewarded existing home owners heavily.  I still regard ownership very favourably and absolutely plan to own my own home in the future, but IMHO if you own 5% of your home and the bank owns 95%, you are not a homeowner. That such heavily-finances 'owners' are given higher social regard than renters with large savings accounts is quite ridiculous, but hey... we still award higher social regard to folks owing $40,000 on a new Acura than those with a paid-off 10-year-old Honda.  Viva conspicuous consumption, baby!  

[Sibling Zono (anon1mat0)]

Much of it depends on local price-to-rent ratios (i.e. how much a house costs compared to annual rent).

Let me tell you a "joke" I'm currently experiencing: I own the title* of the property I live in, and I'm paying a mortgage accordingly. Being a long term mortgage (30 years), despite being here for more than 10 years I owe about 85% of the original loan to the bank. But I imagine you've heard that there was a housing crash here in the States, which in my case translates in what the financial 'experts' call being underwater, that is, if I try to sell the property today, I would still owe a load of money to the bank (about 50% of what the property is currently worth). Now, under those circumstances I should be the first screaming about the advantages of renting if not for the fact that despite my mortgage, my condo fees and my property taxes, my final cost is lower than if I were renting, which for the same living area in the same zone could go from 25% to 50% higher of what I currently pay.

Although you may be right, I am paying rent, to the bank (or at least that is what I tell myself every time I see the balance on the bloody loan). 

*because the real owner of the property is the bank

[Aggie]

Now, under those circumstances I should be the first screaming about the advantages of renting if not for the fact that despite my mortgage, my condo fees and my property taxes, my final cost is lower than if I were renting, which for the same living area in the same zone could go from 25% to 50% higher of what I currently pay.

Although you may be right, I am paying rent, to the bank (or at least that is what I tell myself every time I see the balance on the bloody loan). 

*because the real owner of the property is the bank

In your case, despite being underwater, you're still at an advantage (small consolation, perhaps).  I nearly did get pressured into buying near the peak of the boom in Calgary and could easily have been underwater.   You're at at the extreme end of illiquidity, but provided you don't mind staying in your home for the foreseeable future, it will likely work out in the long run.

Houses in your zone would be a good investment for someone looking to buy a rental property, I guess. That's the classic wealth-transfer model: The owning class keeps rent higher than mortgage payments in order to accumulate wealth from those without enough of a down payment to finance a home. The easy credit that made the housing bubble possible put a switch on that. The cash-is-king model works best when interest rates are high enough to make financing without a majority down payment impossible (however, it also means that renters can make a decent rate of return while saving up for a house).

At least mortgage rates are still reasonably low, which I suppose is one incentive to buy. Cash in the bank doesn't make much, so there is an argument to lock in reasonably-priced financing rather to lose money to inflation on safe 'investments' like GICs.

[Bruder Cuzzen]

WzoW 300,00 pounds a year !? My net worth is barely that ! At the moment I don't know what work I can get .  I wonder if I qualify for some sort of social assistance while o try to find a way to earn money.