Property ladder - how does it work?

1399steve

This is just something I was thinking about the other night - I was wondering how the 'property ladder' works.

I know that people usually start off buying whatever house they can afford and then maybe aim to move up to a bigger or more expensive house a few years down the line. Is it simply the case thatduring the time people are in their first property their income increases and then in time they are able to afford something more expensive?

The reason I ask is that in my case, I bought my first house about 6 months ago, its comfortably big enough for my fiancee and I and certainly one child (maybe two at a push), and we certainly won't be looking to move for at least the next 5-7 years if not longer. The mortgage is affordable with money left over for saving and as long as we both remain in our jobs we will have no problems paying the mortgage.

However, at some point I would like to trade up to get a driveway, garage, extra bedroom maybe but even though we are able to save, I can't see how we would ever be at a point where we could move up to a 'better' house which might be approx £50k more expensive than the one we're in now (at today's prices). Even more so if we do have children and my fiancee takes time off work etc.

Just wondering what peoples views are on this?

Squish_21

In non-recession times you would normally use the equity from your current home to move up. Not the case when it market crashes tho and becomes almost impossible to move on up without HUGE savings.

1399steve

Well I had wondered about that but even if the market was rising, there would still be a (widening) gap between the value of my house and the one I was looking to buy - so even if I had equity, I'd still need to find extra £££ to trade up?

MX5huggy

But you could borrow higher income mutipals, extend the term of mortgage to get more money. The good old days!

CLAPTON

The assumption is that your income will rise over the years so you will be able to get a bigger mortgage and hence a dearer house.

If your income doesn't rise then you won't be able to step up the ladder..

pebblespop

i had some decent payrises between getting first and second house so could get a bigger mortgage. i am still getting good payrises to hopefully will be able to buy third house in a few years - depending on economy.

also may buy a bigger house with my partner in future. otherwise it is a case of saving or borrowing more/for longer (i don't think this will be possible now or int he future)

silvercar

If inflation runs at say 5% a year, and your pay keeps rising with inflation, after 5 years you have an income that is 27% more than when you started. So you could afford a mortgage that is 27% more than previously.

If you also get promotions or other pay rises then your income rises even faster and so you can get something even bigger and save even more money while you wait.

Wappers

Hopefully you would have paid off capital in mortgage 1, as per the normal repayment schedule, also you should have been able to save additional money as hopefully your income may have increased and you would have been saving any surplus money. (You should have some buffer income just in case interest rates go to 10%+)

Then you should have savings+capital+larger mortgage so you can buy house 2.

tomstickland

The ladder doesn't really exist. There's no magic process by which buying a property makes the next one more affordable or cheaper.

russ21282

People who bought 20 years ago or so, gained huge amounts in equity. I think my parents paid 15k for a 3 bed semi, so they had low mortgage payments and then when they came to sell it they had 150k to put down on the next one due the property prices rocketing over the years.

Personally, even without this recession, i don't think property prices could have gone that much higher. The level of peoples wages are not going to up enough in comparison unless mortgage lenders would have given something like 10x your wage.

unfortunately, people who have bought more recently won't see their house price increase ten fold. unless the minimum wage goes up to £50 an hour

domcastro

First house 1999, 86k, wage 21k, 10% deposit. sold 2005 160k
second house 2005, 147k needed 20k work, 35% deposit, Wage 25k sold July 2008 182k
Third house Feb 2009, 205k, 52% deposit, 35k wage

My ladder experience - which of course has happened through the HPC