How does "moving up the ladder" work?

MiddyMum

So, I am 26 and yet to buy my first home but could someone explain how moving up the property ladder works.

From what I can gather, you start off with something affordable. In my case, it would be around the 150K mark. Do you then watch the market to see when prices are rising, take advantage of that, sell and then with the extra equity you gain, upsize?

Please excuse me if I sound ignorant, its just I am trying to understand how it alL. Would significant renovation be needed in order for your property to increase in value in lets say 5 years? Or is it hard to predict in this current climate..

I wont be in a position to buy for a good few years yet, but I guess I have visions of buying a property around the 150k mark, and 7 years later it is still 150k!

Any " wisdom " would be gratefully appreciated.

MM

katejo

MiddyMum wrote: »

So, I am 26 and yet to buy my first home but could someone explain how moving up the property ladder works.

From what I can gather, you start off with something affordable. In my case, it would be around the 150K mark. Do you then watch the market to see when prices are rising, take advantage of that, sell and then with the extra equity you gain, upsize?

Please excuse me if I sound ignorant, its just I am trying to understand how it alL. Would significant renovation be needed in order for your property to increase in value in lets say 5 years? Or is it hard to predict in this current climate..

I wont be in a position to buy for a good few years yet, but I guess I have visions of buying a property around the 150k mark, and 7 years later it is still 150k!

Any " wisdom " would be gratefully appreciated.

MM

It really depends on the housing market and i can't predict what is going to happen in the next few years. I was lucky in that i bought my first place during the early 90's recession so it gained value. However I didn't have the money to move up to the next rung for 12 years as I was doing things on a single income. You can help yourself by getting a repayment mortgage which allows overpayments. Then you will be able to increase your equity in the property. It isn't a good idea to assume that prices will go up and rely on that!

InMyDreams

OK, so assuming no house price changes, the way you 'climb the ladder' is to start with what you can afford. Hopefully by the time you want/need a bigger place you will have paid off some of your mortgage (so your equity will have increased, enabling you to put down a bigger deposit) and your income will have increased (so you can borrow more).

House price fluctuations don't really come into it. In fact in some ways it's easier to up-size in a falling market because the cheaper the houses are, the less of a price jump there will be to the next one up. The problem is that house prices falling are often coupled with recession/unemployment which mean you are likely to not be in such a strong position yourself. The other problem with falling house prices is the dreaded trap of negative equity if you had a small deposit to start with.

Renovation also doesn't necessarily come into it (unless you are able to do the building yourself) because by the time you've shelled out for all the work, the value you have added may well be less than what you've spent on the renovations.

G_M

I think you need to distinguish between a property investment, and a home.

If this is your home, just buy something that a) fits your needs and b) is affordable.

Later on, either your needs may change (marriage, kids, new job location) or your affordability will change (pay rise, new job, redundancy...)

At that point, move.

If property prices have changed the impact financially will be minimal since if you have gained on the current place, you'll pay more for the new one, and if you've lost on the current place, you'll pay less for the new one.

But over-riding this, is the more important fact that you will have a home you like (or don't if unlucky) and where you can live (saving rent).

Now if you are running a property business, that is a different ball-game.

SG27

I can't work the housing ladder out either. I often hear that people can't move up the ladder because of falling prices. But if prices are rising and you want to buy a more expensive house then the house you want to buy will have gone up more than the house you are selling so it costs more to move? The only way to move up the ladder is for your wages to improve more than prices rise. Or for your current house to rise in value independently of the market.

MiddyMum

Thank you for all the replies, very helpful.

I will want a home to start off with. I was just hoping to put down 50k on a 150k property and just overpay it so that the mortgage was clear within 10 years. I want to buy a home that I would be happy to stay in for the forseeable future...but property is a big love of mine and would love to do property investment on the side as well, not to rent, but a do-er- up-er and then sell but just not sure if that is a good idea in this climate nowadays. Anyway, by the time I get there it will probably be all different.

But thank you all for explaining to me the way things work.

MiddyMum

SG27 wrote: »

I can't work the housing ladder out either. I often hear that people can't move up the ladder because of falling prices. But if prices are rising and you want to buy a more expensive house then the house you want to buy will have gone up more than the house you are selling so it costs more to move? The only way to move up the ladder is for your wages to improve more than prices rise. Or for your current house to rise in value independently of the market.

I think this could apply to people that have negative equity in there homes, so in effect have nothing to " upsize " with.

googler

SG27 wrote: »

I can't work the housing ladder out either. I often hear that people can't move up the ladder because of falling prices.

If the price the house will sell for today is less than the outstanding mortgage owed upon it, that may form the initial difficulty

Example; I bought for £33k, with a mortgage of £27k, and moved on when prices had gone up, selling for £83k or so in 2001. I can't recall the exact figures, but this gave me something of the order of £50k over and above my initial outlay to put toward the new purchase.

There's houses near me which would have been selling for £165k or so in 2006/7. With a 90% mortgage, that's someone tied to the bank for £148,500 if they'd bought then (as some did). At the moment, you'd be lucky to sell the same for £140-145k. This gives them next to nothing over and above their initial outlay

ukcarper

googler wrote: »

If the price the house will sell for today is less than the outstanding mortgage owed upon it, that may form the initial difficulty

Example; I bought for £33k, with a mortgage of £27k, and moved on when prices had gone up, selling for £83k or so in 2001. I can't recall the exact figures, but this gave me something of the order of £50k over and above my initial outlay to put toward the new purchase.

There's houses near me which would have been selling for £165k or so in 2006/7. With a 90% mortgage, that's someone tied to the bank for £148,500 if they'd bought then (as some did). At the moment, you'd be lucky to sell the same for £140-145k. This gives them next to nothing over and above their initial outlay

Except that if they had taken a 25 year repayment mortgage a 5% they would owe bank about £127k

Loopgames

I usually use my parents as an example to understand it:

1st house: bought for £105k. Deposit £25k mortgage £80k. Year 1994

2nd house: bought for £275k sold first house for £180k so used £100k deposit to fund second house. Mortgage £175k. Year 1999.

3rd house: bought for £325k. Sold second house for £565k. Paid off mortgage of £140k at that time, bought this house outright and used their pot for retirement. Year 2008.

So all in all their idea of going up the ladder was to be mortgage free not bigger house as they downsized eventually.

mildred1978

I did it in just 2.5 rungs really.

Age 19, mid-90s bought £40k 3 bed house with £12k deposit and £28k (endowment) mortgage. Earned around £10k per annum. Apart from a lick of paint, adding an electric shower and replacing a carpet or 2 I did nothing to it. Sold it 7 years later for £125k. Sold endowment for £14k.

OH bought a new build off plan in 2003, just before we moved to London. Had a few extras put in new build and sold 6 months later for £40k profit. At this point he earned around £56k.

Bought flat in London in 2003 and sold in summer 2008 for £50k profit (just before market crashed). We hadn't done anything to the flat but clean it. While in London both salaries and packages increased to £65k and £85k respectively.

Got married and spent £15-18k on wedding.


Bought 6 bed house in 2005 for £340k with £150k deposit. OH earnings stayed at around £85k, mine reduced to £45k. Took redundancy in 2011 and cleared £80k payment. Have extended (£50k), mortgage is now around £100k and is more than completely offset, so we have no interest to pay and are on course to pay it off within 7 years. It's the family home now, so I don't care what it's worth now. We wouldn't move if we won millions on the lottery so it's not an issue.