This ghastly expression "The property ladder"

westernpromise

Where on earth did it originate?

The assumption that everyone needs to "get a foot on the property ladder" is one of those bits of received wisdom, like "renting is money down the drain", or "increasing tax levels increases the overall tax take", which don't stand up to five seconds' scrutiny.

Most obviously, this is because there is a no "ladder", as such. Ladder implies upward movement. In fact, for property owners there is rarely (if ever) any actual net upward movement.

What there is, rather, is inflation, which is not a benefit at all but a penalty. If your house inflates in price, you can only access your inflationary "gain" by selling up and going to live in a smaller or otherwise less attractive property.

So although it might feel like free money, you have come by your "equity" only by settling for something less in the way of a house then what you had to begin with.

And if you want to buy a bigger house, well, your house may have inflated by £100,000, but the one you want to buy has inflated at the same rate and hence in cash terms by more than that.

So the difference between your gain and your vendor's gain is a cost you must absorb, and a direct reduction of your personal net worth. You have been impoverished by the "property ladder" in a zero-sum cycle, whose only beneficiary is the Government, in the form of stamp and death duties, and estate agents.

Nobody talks about getting on the train fare ladder, or the food ladder, or the car ladder, or the mobile phone ladder, yet these are all things whose price tens to inflate and which are simply consumed.

So where exactly did this notion come from? Does anyone else - ie. outside the UK - talk about a "property ladder"?

Cannon_Fodder

I think you have perfectly demonstrated the problem with Property attitudes today - you think of it entirely as a financial process...which BTL and so on have turned into a nightmare of house-price inflation.

To answer your question - The Property Ladder - in my opinion, is the steps you take from a Flat, thru Small Terrace, to Large Terrace, to Detached and so on until your get the Property type that suits your family needs...NOTHING to do with money side. (although each type of property carries it own premium/comparative value, of course, just not to the scale now seen)

20 years ago, few treated property as the money-making scheme it has become today, so getting a foot on the ladder, was when couples set up home, and moving up the ladder was necessary when they started having kids.

One only hopes that interest rates put enough BTLers out of business so house prices suffer a collapse and things are bit saner...

F_T_Buyer

I do think it's just a buzz word, as there is no ladder today. Ultimately the ladder only works with wage inflatio; but wage inflation today is less than the increased cost of essentials.

What concerns me most is how the phrase property ladder is used in official reports like the Barker Report.

Just like another buzz word 'equity release'...

lynzpower

Ive always HATED the expression :mad:

and have merrily rambled on about it here many a time.

What REALLY annoys me is people ( not only FTB, my parents used it last week! ggggRRRR) who dont understand it.

Im selling to rent for a while and the amount of people who say " but how can you step off the ladder? "

me- WHAT EFFING LADDER!?!?!!?!?

just really does wind me right up.

westernpromise

If house price inflation behaved like all other inflation there would be no "need" for a "ladder", though. In Germany, for instance, people typically buy a house perhaps once in their lives. I.e. in their late 30s or early 40s, they buy the family home in which they intend to stay indefinitely. So they are both first-time buyers and last-time buyers, all in the same transaction.

If they previously bought at 25, 30, and 35, they would gain something back in price inflation, but it would be cancelled out or even more than cancelled out by all the extra outlay they had from having owned rather than rented (maintenance, insurance, transaction costs, etc).

It seems quite clear that for a "ladder" to exist in the way it is usually meant - i.e. by getting on it, you secure net capital you'd otherwise have missed - then prices must inflate faster than wages - forever. The capital is then transferred from late market-entrants to earlier ones, as the former pay above-inflation prices to the latter, who themselves did the same thing previously.

At some point, however, this will exhaust the pockets of every last buyer and at that point the "ladder" will correct into a "snake", as in 1974, 1989, etc. Opening our borders to unlimited immigration will postpone this moment when the last buyer has bought, but it can't postpone it for ever.

Would it not be more accurate to speak of "playing snakes and ladders" with house prices? Because if there really is a ladder then by definition there are also snakes.

lynzpower

wp- I just couldnt agree with you more

Cannon_Fodder

Being the single most expensive purchase (or chain of purchases) in anyone's life, I think it is right to view Property in a slightly different way, from train fares, cars, mobile phones...

"Getting off the ladder" doesn't matter with a TV coz next year it will be even cheaper, with more features etc.

Until we get hit by a "snake" scenario, the "buy-in" to get that first house, is going up and up and up...or if you leave the market to rent for a while, that means the equity you take from the sale has got to grow faster than the property market, in order to be able to get that same property again when you decide you want to...unless we hit a snake!

Ghastly maybe, but its just an analogy - that used to have some meaning when people weren't so nuts about paying over the odds on a pile of bricks.

BobProperty

I just keep thinking "Relativity" by MC Escher. :rotfl:

ascollen

Some interesting comments here - v. thought provoking.
As a BTL'er maybe I should be feeling threatened
I certainly don't want to be put out of business by interest rates, although I think that a price crash would have the opposite effect - it could mean even more BTL'ers get started as yields on rental property look attractive again.

The biggest problem with property is the number of people who've turned it into a "get-rich-quick" scheme.
Anyone with any sense knows that it takes determination, hard work and time to build any business, and property is no different.
It strikes me that the biggest winners are the BTL "experts" writing books or making TV shows to feed a hungry populace. (I think Sarah Beeny's great by the way!)

whambamboo

ascollen wrote:

Some interesting comments here - v. thought provoking.
As a BTL'er maybe I should be feeling threatened
I certainly don't want to be put out of business by interest rates, although I think that a price crash would have the opposite effect - it could mean even more BTL'ers get started as yields on rental property look attractive again.

Not sure you've followed that through.

Say you own a property worth £200k now. You might pay £8000/year interest on a £160k mortgage. And you make £10,000 year/rent. But then interest rates go up, and you now pay £10,000/year interest, with other costs on top.

Your property falls in value to £140k, so you have £20k of negative equity, and you're losing money every month on the rent.

Explain how that's a good thing for you?

Alan_M_2

whambamboo wrote:

Not sure you've followed that through.

Say you own a property worth £200k now. You might pay £8000/year interest on a £160k mortgage. And you make £10,000 year/rent. But then interest rates go up, and you now pay £10,000/year interest, with other costs on top.

Your property falls in value to £140k, so you have £20k of negative equity, and you're losing money every month on the rent.

Explain how that's a good thing for you?

He was suggesting the drop in value of property would make purchasing more attractive (i.e. would actually attract more new BTL ers) as the rental yeild will be more in line with what it should be i.e 7%+, He wasn't suggesting holding a portfolio of hundereds of properties as they dropped was a good thing, that would just be dumb.