February 6, 2018

Give up Avocado on Toast, Gain a Deposit for Housing? A 26 year old's View of Buying in London

From the always affable Daily Scot, Scot Bathgate sends this rather cheeky article from The Guardian where 26-year-old Elle Hunt who defines herself as “squarely a millennial” decides to account for all her purchases to see if she can save up for a down payment on a place. And she is in London England. As Ms. Hunt notes “House prices have grown faster than rents and incomes, moving far beyond what is considered affordable, especially for twentysomethings. The only people my age I know who have bought a house have done so outside London, as part of a couple, with help from their parents or all three. But you wouldn’t know that from the commentators who argue that a deposit would be within the grasp of all millennials – if only we would cut back on takeaway coffee and avocado toast.”
“But I find the argument that I could afford a house simply by going without luxuries for a few years hard to swallow… But I have decided to test my assumption that, as a single twentysomething committed to living in a major city, I will never be able to buy a house.”
Ms. Hunt uses a money-saving “expert” to record all of her spending  for a month. Realizing she needs a mortgage of around 350,000 British Pounds (which is over $612,000 Canadian dollars) the “expert” suggests she won’t be able to save up, and asks if she has a Significant Other.
Ms. Hunt records all of her  purchases and thoughts over the month and at the end, the money “expert” tells Ms. Hunt that “on the basis of my salary and my spending, Lewis believes home ownership is within my grasp – even outside a relationship. I am astonished. Scanning my spending diary, he says it would be “very possible” for me to save from £400 to as much as £700 of my disposable income each month by cutting back on coffees, lunches out, rounds at the pub and holidays. “Let’s be blunt: you do not need a money-saving expert to tell you that.”
Of course it would take four to eight years to reach a ten per cent deposit of  35,000 British pounds, and that is assuming ten per cent down and prices staying stable. “But I have to want it, the money expert continues. He has pages of evidence that I do not. “The most telling point in the whole thing, for me, was this line: ‘Brought lunch in, felt smug about it.’ If you were deliberately saving for a house, that would be habitual. It would not be smug.” Elle Hunt’s journal entries of spending and wit are available here.

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  1. My daughter lives in London as a new graduate with a masters degree from one of the world’s best universities. She has now been offered 3 jobs in “tech”: one in tech consulting, one in a tech startup, and one in a tech incubator. The salaries have ranged from 40k to 48k Pounds per year. For those not familiar with London or Pounds, that equates roughly to the buying power of $40-48k in Vancouver. And those salaries are not unusually low; one of her friends is doing an internship with Siemens for 19k Pounds and she can’t live on that so her parents are kicking in the rest.
    So let’s say my daughter takes the 48k GBP job. Where does that get her? After taxes, rent on her tiny shared apartment, food, gym membership, transportation, modest clothes budget etc, she would have maybe 5k Pounds left over for everything else including vacations, entertainment, avocados etc. By cutting out all those “extras”, exactly where would that get her?

    1. It is difficult, I agree! I find putting money away in savings on pay day before I can spend it on anything else a god way to get started saving. Also, I started saving a small amount each month, only 100 to begin with, and then every month that I had leftover money I increased the amount going into savings. Your daughter should also take a look at the ISAs on offer too. Although you can only put a tiny amount away, it’s surprising how quickly it all adds up. Anyway, 48k as a starting salary is awesome, she’s obviously worked extremely hard to get to where she is, you should be proud!

    2. 48K GBP is a very good starting wage, equivalent to about 73,000 Can$. Most Canadians do not start that high today except in rare circumstances.
      It is very unusual for a young worker to be able to immediately afford yo buy anything, anywhere in a major world city, except in AB, SK or MB. Not in Toronto or MetroVan or New York, Singapore, Hong Kong or London. Maybe Berlin.
      That will happen later, after say 3-8 years of working, and savings, with a spouse. THEN they can buy s.th.
      Many couples then realize that thee world cities, while fun and loads to do, are very expensive and tough to raise kids on 1 or 1.5 or 1.75 wages .. so they often move to smaller towns like Nanaimo, Abbotsford, Kamloops, Kelowna, Barrie or Red Deer.
      Renting forever also a choice of many that wish to stay in these big cities, as 50% rental is quite common in MetroVan, as it is in most European cities.

        1. deleted as per editorial policy
          The average millennial is NOT buying an average house in Vancouver.
          Also, if one defines MetroVan as “Vancouver” then an average home drops quite a bit and maybe is a 1000 sq ft condo in Surrey or Burnaby for $500,000, which is QUITE ATTAINABLE for those latte skipping saving couple with average wages.
          The dream of owning a house in Vancouver needs far deeper pockets, like most world cities these days. Vancouver is not that different here.
          Think condo, not house.
          Also I note that £48,000 is actually Can$83,000 so well above an average Canadian starting wage.

    3. The median salary in London (higher than the rest of the UK) is £34,473. Your daughters’ starting salary at £48,000 is almost 50% higher.
      I’d say she’s off to good start.

      1. … basically only possible because of this: https://www.london.gov.uk/sites/default/files/housing_in_london_2015.pdf … and the fact that they have such for ~25% of the population.
        Vancouver has less than half that http://vancouver.ca/files/cov/housing-characteristics-fact-sheet.pdf … ~10% … this makes a huge difference in apparent affordability.
        I wouldn’t say ‘she’s off to a good start’ … I’d say she isn’t as far behind as she could be.

  2. This 3-8 years also assumes that such places don’t double in price between now and then … which they have been, which would mean that it isn’t 3-8 years at all, even assuming it was 3-8 years in the first place, which it isn’t.