Slow and Steady

Interesting stories in FT Weekend

Posted on: April 19, 2009

Jobless bankers go back to school.

The mass redundancies meted out in the City of London over the past year are turning out to have a happier side as growing numbers of the newly unemployed use their time away from work to try out lower-paid but more pleasurable pursuits.

Schools teaching cooking, ski instruction, professional yachting and mountaineering have all reported big increases in inquiries from recently redundant bankers and analysts, as have gap-year programmes for adults.

In Cornwall, the Classic Sailing centre has had to add extra vessels to cater for higher demand from would-be crew members, while Buckinghamshire’s Mountain Chefs cookery school, which trains ski chalet chefs, plans to more than double the size of its student body this year.

Former City workers, many of whom have large savings and generous redundancy packages, are well placed for such courses.David Payne, for instance, had often dreamed of being a chef, but never found the right time to do it. Instead, the Oxford classics graduate went to McKinsey and then to GLG Partners, a well-known UK hedge fund, where he worked as an analyst for a portfolio manager.

After being made redundant in November, the 27-year-old enrolled in Le Cordon Bleu, London’s nine-month-long Grande Diplome programme with a £21,000 full-time course that teaches cooking and pastrymaking. He is thoroughly enjoying the move.

“Cooking is something I’ve always been passionate about,” he says, “but it seemed irresponsible to give up a several hundred-thousand-pounds-a-year job to indulge it.

It’s really interesting to see the kind of things people try when they have money to live on and time. I’m glad that people are realising that it isn’t all about money, and are using the time for something that will enrich their lives, and maybe a new career!

Adults living with parents

They are called “kidults” or “the Boomerang generation”. Children who happily leave home, only to return a few years later as they realise they can’t afford to pay their rent. The credit crunch seems to have exacerbated the trend. There are now almost 2m people over the age of 18 living rent-free with family and friends – nearly four times as many as a year ago, according to Abbey. The poor parents – as if they don’t have enough to worry about, what with decimated pension pots and tumbling house prices.

Ten years or so ago, many of these returnees would have found it relatively easy to enter the property market. But more and more traditional first-time buyers have been excluded – initially because house prices rose to unaffordable levels and, more recently, because they can’t get mortgages. Figures out this week implied the difficulties may be easing. The number of home loans provided to first-time buyers in February was 7 per cent higher than the previous month, according to the Council of Mortgage Lenders. Unfortunately for the boomerangers, a closer look shows how much harder it has become for first-time buyers to get a loan. The average deposit put down by this group was 25 per cent in February, compared with 11 per cent the previous year, while their average income multiple for loans has fallen from 3.35 to 2.95. Also, the number of loans supplied to first-time buyers was still down almost 50 per cent compared with last year.

Anecdotal evidence from estate agents paints a similar picture. Yes, they have seen more first-time buyers, but only a few and only when their parents – perhaps keen to reclaim their spare rooms – give them a sizeable amount of cash. For example, the sales manager of the Winkworth’s branch in Shepherds Bush, west London, says around half of the buyers registering are first-timers. But the majority of these “have originated from family homes in the more expensive neighbouring areas of Ladbroke Grove, Kensington and Notting Hill” and “are supported by cash from family investments and not their own savings”. Lucky them. Savills, meanwhile, has seen very few independent first-time buyers, but an increase in the number of parents (clearly getting really desperate) who are buying properties for their children outright, typically with cash. These trustafarians make up as much as 40 per cent of new applicants in some London offices.

The problem is the vast majority of 20-somethings do not have parents with a few hundred thousand pounds languishing in a 0.1 per cent savings account that they want to put to better use. And the danger is that these people will miss perhaps the best chance to enter the housing market – in terms of capital values – of their lifetime. If these people can’t get on the ladder now, when will they be able to?Lenders are beginning to take steps to help first-time buyers. Halifax, for example, will on Monday launch an offer for home-buyers that will pay half their council tax bill for the first year, up to £1,000. Abbey has launched a mortgage that will give first-time buyers £250 cash back, as well as a free property valuation and free legal services. Some lenders are also making more mortgages available to borrowers with small deposits. Halifax, for example, will lend new buyers up to 90 per cent of a property’s value, with fixed rates starting at 6.19 per cent. Abbey will take on borrowers with just 5 per cent in cash, but will lock them into a whopping rate of 7.09 per cent for five years and charge a fee of £2,499.

Also, brokers say that just because lenders advertise these high loan-to-value deals it does not mean they are necessarily willing to do much business in this area. The cost of high LTV mortgages should eventually fall – but, ironically, not until lenders feel more confident about the housing market, in which case, prices are likely to be higher.The bottom line is that first-time buyers need to save around £40,000 to have any real chance of securing an affordable mortgage on the average-priced house in the UK. In London, that would be closer to £60,000. Two years ago, they could have snapped up a property with no savings and a much cheaper mortgage rate.

At the same time, rents are more affordable, giving potential homebuyers even less of an incentive to buy. Someone renting a £400,000 flat in south-west London could expect to pay rent of around £1,500 a month, says Savills. To buy the same property, the monthly mortgage interest for someone with a 10 per cent deposit, on Halifax’s 6.19 per cent rate, would be around £1,850. So the buyer is being asked to pay an extra £350 a month – on top of the £40,000 deposit, stamp duty and fees – and shoulder the risk of house prices falling further. It will take more than free council tax or a few quid in cashback before kidults are tempted off their parents’ sofas.

Of course I would find this story interesting as I am an adult who has moved back into the family home. It was a really hard decision, and while I know I’m lucky to have the option, I’m still sad and upset that it had to come to this.

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