What London is like on the average UK household income
Disposable income is one of the most influential factors in people’s lives. With this in mind, we use behavioural economics to illustrate the lifestyle that a couple in London earning the average disposable income is likely to have.
What is the average UK household disposable income?
According to the Office for National Statistics, the average UK household had a disposable income of £31,400 for the financial year ending 2021. As can be seen below, this is the income left once taxes, including council tax, have been deducted. This means that all household and living expenses would need to be paid within disposable income.
Credit: Office for National Statistics
What would be like on £2,617 a month?
The average UK household size is 2.4, so for illustrative purposes, we can simplify this to a couple living together. We can then translate the yearly disposable income into a monthly figure of £2,617.
We can then estimate their monthly outgoings if they lived average lives in all areas. The analysis is full of assumptions, which we consider the implications of later on.
The average cost of housing (£1,687 a month)
If they purchased a property in March 2022 at the average London house price, it would have cost £523,666. This is considerably more than in other areas of the country, and particularly the North East, where the average price of a house was £154,913.
If they paid a 15% deposit and secured a 5% mortgage over 30 years, they would have to pay back £14,837 a year or £1,236 a month. They would also have to cover home maintenance at 1% of the home’s value each year or £436 a month, which is easy to forget given the purchase price costs. They would also need to pay home insurance, which on average would be a further £15 a month.
The cost of utilities (£227 a month)
The couple would have to cover the average monthly gas and electricity cost (£164), the average water bill for two people (£33), and the average cost of broadband (£30).
The cost of transport (£402 a month)
If they own a car, then they would need to cover fuel costs, ongoing maintenance and car insurance. They would also have to add the costs of public transport in London, as many areas are more challenging to visit with a car, which would come to approximately £402 a month.
The cost of food (£300 a month)
The average monthly food shop for food eaten at home has to be estimated at £3,601 a year or £300 a month.
Monthly income left = £1
In this example, the couple would be left with just £1 left each month. This is before they have paid for other essential household items such as furniture and clothing. It’s also before any discretionary expenses have been considered, so it’s clear to see that life would be very difficult in these circumstances.
At this point, we can re-evaluate their situation. For starters, it’s highly unlikely they would be able to afford an average property in London because their household earnings (approx £45k) wouldn’t allow them to borrow more than £225k for a Mortgage. It’s extremely difficult to find any property in London around this valuation.
Yet, renting an average property would also be a challenge for them. The average London rent is £1,898, which is considerably more than the mortgage repayments of £1,236 covered earlier. As a result, the likely outcome would be that the couple would have little choice but to rent a one-bedroom flat for around £1000 a month, thereby also saving on energy and maintenance costs.
The couple may also decide to make further savings by using only public transport. That said, however we run the numbers, it’s difficult to find a scenario where a couple receiving the average household disposable income could afford to live in London without additional help of some sort.
Continue your interest
We hope you enjoyed reading. You may also be interested in our blogs investigating the salary needed to survive in London and the impact of parental money on young people in the UK. For anything else, please get in touch below. We look forward to hearing from you.
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