Climbing the Property Ladder

princeofpounds

Right YOUR EXAMPLE i buy house for 100k put 10k down. House i really want is 200k.

10% increase i sell my house to a nice couple for 110k less mortgage of 90k leaves me with 20k.

I go to the 220k house and buy it, give them 20k from my last house and borrow 200k.
If i had brought the 200k house first with my 10k deposit i'd be borrowing 190k!.

Wow... you clearly have no idea of nominal and real pricing, nor have you really spent the time to understand my previous post.

There is a certain amount of time that passes between the beginning and the end of this example. In that time there is something called INFLATION. This means that the real value of money declines over time thanks to the debasement of fiat currency.

http://en.wikipedia.org/wiki/Inflation

In this example the inflation was 10%. So yes, you would have had to borrow 190 for the big house at the beginning and 200 for it at the end even assuming you had a suitable deposit. But the REAL value of that 200, using the beginning period as your benchmark, is only 181.8.

(200/1.1 = 181.8... if you are interested)

So in fact, you are paying less in real terms by buying at 220 rather than at 200.

You MUST forget nominal pricing, it doesn't mean anything at all.

I demonstrated this exact same thing through illustrating the proportion of ownership in the previous post.

I work as a financial analyst, I do know what I'm talking about.

moggylover

pinkshoes wrote: »

It will always be a ladder though; buying your first is a step on, then paying off the equity and using that as a deposit for a bigger property will be the next rung etc...

No matter what happens to prices, it will always be seen as a ladder.

I would LOVE to get my foot on a higher rung, and can afford it, but unfortunately I can't find a single property that interests me as so few people seem willing to sell in this market.

Up until a few weeks ago, I had actually "sold" and spent most of the summer hols wasting my time tracking around looking at what was "on the market" in my area.

Now, in order to achieve a sale, I had been most realistic about what I could get for my own house (and my mothers which I had sold earlier in the year) but I found myself faced with the biggest lot of dross and over-priced carp ever when looking to move on! It is incredibly sad when you are looking to spend £100K more than the value of your own very comfortable stone built period cottage (long-house style) with two good sized double bedrooms, and fairly large, well-proportioned rooms throughout and just a smidge under a quarter of an acre garden and are only able to find either generic bungalows with approximately .5 of a bedroom extra in floor space and a garage marketed within that price range. The alternative were south-fork styled houses (although not quite so impressive inside) built on Council estate plots and in the end I withdrew at the very last moment (much as I hated to dissapoint my buyers:o) and decided that by far the best way to spend my money was on extending the home I have! Had I now been so restricted by school catchment area I could have found something rather nicer, but this immediate area had very little worth the looking!

Speaking to Estate Agents there was a general feeling that very few sellers are willing to be realistic and that many of them are willing to just sit on the market (and indeed, several of the houses I looked at have been on the market for well over a year - and some for as much as 4 years already:eek:) forever rather than take their heads from their backsides:rolleyes:.

ss70

princeofpounds wrote: »

Wow... you clearly have no idea of nominal and real pricing, nor have you really spent the time to understand my previous post.

There is a certain amount of time that passes between the beginning and the end of this example. In that time there is something called INFLATION. This means that the real value of money declines over time thanks to the debasement of fiat currency.

http://en.wikipedia.org/wiki/Inflation

In this example the inflation was 10%. So yes, you would have had to borrow 190 for the big house at the beginning and 200 for it at the end even assuming you had a suitable deposit. But the REAL value of that 200, using the beginning period as your benchmark, is only 181.8.

(200/1.1 = 181.8... if you are interested)

So in fact, you are paying less in real terms by buying at 220 rather than at 200.

You MUST forget nominal pricing, it doesn't mean anything at all.

I demonstrated this exact same thing through illustrating the proportion of ownership in the previous post.

I work as a financial analyst, I do know what I'm talking about.

So you admit you are paying more for the same thing. Sorry but your ladder doesn't exist.

inflation, is only in this one asset class. wages have not inflated at same rate and therefore you are incorrect,

Do you not need a GCSE in maths to be a financial analyst?

pie81

ss70 wrote: »

Your point?

I was responding to your post which appeared to be arguing that, with a fixed amount of deposit, it would be better to buy the more expensive property upfront (assuming you can borrow enough) rather than starting off with a cheaper property and buying the more expensive one later.

My point is that this is only better if prices go up. If prices go down you will lose a lot more if you bought the more expensive property than if you bought the cheaper one.

ss70

pie81 wrote: »

I was responding to your post which appeared to be arguing that, with a fixed amount of deposit, it would be better to buy the more expensive property upfront (assuming you can borrow enough) rather than starting off with a cheaper property and buying the more expensive one later.

My point is that this is only better if prices go up. If prices go down you will lose a lot more if you bought the more expensive property than if you bought the cheaper one.

My post was highlighting the non-existent property ladder of equity. It was not meant to reflect the disadvantages of leverage.

princeofpounds

So you admit you are paying more for the same thing. Sorry but your ladder doesn't exist.

inflation, is only in this one asset class. wages have not inflated at same rate and therefore you are incorrect,

Do you not need a GCSE in maths to be a financial analyst?

What on earth are you talking about? House price inflation and general inflation in this example are the same.

Of course housing inflation can be different to other asset classes over a short period of time, but over the long terms inflation for all assets must necessarily be equal. If they are not, then the higher inflation asset class will become 99.9...% recurring of the value of the economy thanks to perpetual compounding of the higher inflation rates.

Now, if you are referring to the specific pattern of wage and house price inflation over the past few years, it is only the last 9 years that pattern was true, and 9yrs is not a long time in terms of the housing cycles someone experiences over a 50 year lifetime. The preceding 9yrs wages outinflated prices.

So which is it. If the former then your theoretical argument is pretty useless, and if the latter it's actually quite irrelevant and transitory to any discussion of what a housing ladder/snake actually is.

princeofpounds

My post was highlighting the non-existent property ladder of equity

Incidentally, if you are arguing that the property ladder isn't a ladder because it doesn't always work, then I think you misunderstand my stance.

As I clearly set out beforehand, the 'ladder' only works in certain economic conditions, house price inflation being key to that. You can see I very specifically point out that it becomes a 'snake' if the economic environment doesn't work out as hoped. So I don't believe it is a necessarily positive tactic to be followed.

But to be honest i'm not quite sure what you think you are demonstrating... because you just seem to miss the point so much. Perhaps you can explain yourself in a little more detail?

kriss_boy

Fire_Fox wrote: »

These two sentences make absolutely no sense when taken together!

To be frugal is to make your money go as far as possible, not simply save every penny.

I bought a new (used) car earlier in the year but travelled 200 miles south to get it as they are cheaper in England! I only got it as my old one was turning into a death trap!

I haggle bills, making sandwiches for lunch at work, buying second hand a lot, shop online with vouchers and credit cards with promotions.

I complain a lot too, got vouchers from britvic when a vendy ate my money... :money:

kriss_boy

Ok, hypothetically,

Combined income 45K.
Equity 20K. Therefore mortgage 190K to buy a place thats 210K.

Which of those figures needs to change and in what direction to make that possible.

Our after tax income is about £2500 per month and repayments on 190K mortgage over 35 years at 6% is £1100.

Im sure many people commit themselves to a situation like that but in your opinion what figures make that viable? You know- wait till we earn X amount or wait till we have X amount of equity.

If the interest rate went up to 10% in that case we would be screwed!!!

ss70

princeofpounds wrote: »

What on earth are you talking about? House price inflation and general inflation in this example are the same.

Of course housing inflation can be different to other asset classes over a short period of time, but over the long terms inflation for all assets must necessarily be equal. If they are not, then the higher inflation asset class will become 99.9...% recurring of the value of the economy thanks to perpetual compounding of the higher inflation rates.

Now, if you are referring to the specific pattern of wage and house price inflation over the past few years, it is only the last 9 years that pattern was true, and 9yrs is not a long time in terms of the housing cycles someone experiences over a 50 year lifetime. The preceding 9yrs wages outinflated prices.

So which is it. If the former then your theoretical argument is pretty useless, and if the latter it's actually quite irrelevant and transitory to any discussion of what a housing ladder/snake actually is.

No maths GCSE? No qualifications are need to be a financial analyst.

My ladder example shows you need to pay more to change, even though the equity may have increased, the cost to change always increases in an increasing market. Therefore no ladder.