How does "moving up the ladder" work?

InMyDreams

Loopgames wrote: »

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

This is risky, because we live in a very different economic climate. People are in lots of trouble today because they have tried to follow their parents' example. Yours were particularly lucky with their timing.

Loopgames wrote: »

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.

Anyone who bought 5/6 years ago and didn't aggressively pay off their mortgage is likely to be looking at negative equity rather than being able to quadruple their deposit. And most ftb 5/6 years ago didn't manage a 24% deposit which has just made things worse.

Loopgames wrote: »

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.

This only worked because their house more than doubled in price in 9 years. Are you seriously suggesting people should follow suit with this plan today? Good luck to you if you are planning to follow this strategy today.

Same to mildred1978.

Selling just before the market crashes, then buying a couple of years later is perfect, but not something anyone can plan. Most aren't so lucky.

Moving 'up the ladder' is nothing to do with magically making money from house price rises. You need to concentrate on increasing your equity 'manually' over the years by paying off your mortgage as fast as you can. Earning more as the years go by helps.

DVardysShadow

mildred1978 wrote: »

We wouldn't move if we won millions on the lottery.

Worth repeating. This is generally what you are looking for.

Loopgames

I wasn't suggesting to do anything. I was giving an example of what climbing the ladder means to some people.

My husband and i are using a different strategy. We sold our flat at peak and are using another route to go 'up' the ladder. And sometimes you have to be prepared to go down one ladder to go up another in todays market:D.

ukcarper

InMyDreams wrote: »

This is risky, because we live in a very different economic climate. People are in lots of trouble today because they have tried to follow their parents' example. Yours were particularly lucky with their timing.



Anyone who bought 5/6 years ago and didn't aggressively pay off their mortgage is likely to be looking at negative equity rather than being able to quadruple their deposit. And most ftb 5/6 years ago didn't manage a 24% deposit which has just made things worse.



This only worked because their house more than doubled in price in 9 years. Are you seriously suggesting people should follow suit with this plan today? Good luck to you if you are planning to follow this strategy today.

Same to mildred1978.

Selling just before the market crashes, then buying a couple of years later is perfect, but not something anyone can plan. Most aren't so lucky.

Moving 'up the ladder' is nothing to do with magically making money from house price rises. You need to concentrate on increasing your equity 'manually' over the years by paying off your mortgage as fast as you can. Earning more as the years go by helps.

　

I believe it can still work in a falling market as long as you use a repayment mortgage as show in previous example some one buying in 2006 for £165 with a 10% deposit and selling for £145k now would still have £18k equity to use as a deposit and as the price of the more expensive house would have fallen as well you would have the deposit on a better house..

But as you say it’s no good taking a 100% interest only mortgage and hoping for HPI.

　

AlexMac

As someone once said- you can't beat the market (well you can if you're really lucky, but there's always an exception to the rule). The reality is that you are unlikely to live through a repeat of the economic and political context which, quite ridiculously caused 'my generation' (as the 'Who' song of the 1960's called us) to benefit obscenely from house price inflation in the past 40 years.

These historic factor included-
-Willingness to live in a dump while you work on it;
my 1st purchase- a 4 bed terrace in Brixton, S London, for £10,000 (yes, £10k- really) in the 1970's lacked all amenities, and still had coal cooking ranges in the bedrooms.
-Luck or judgement in choosing an area which was being gentrified;
my partner's 1st buy in Greenwich, tripled in value in 2 years in the 1970's as the middle classes 'discovered' run down terraces of 18th and 19th Century workers' homes before the Council knocked 'em all down.

-political ideology amounting to bribery; as governments sold off the most desirable public housing at knock-down rates to sitting tenants and gave tax breaks to individual purchasers to encourage home ownership (eg, a property I bought in 1985 for £37k 'earned' me over £10k in 'Mortgage Interest Tax Relief at Source -MIRAS' in 6 years then sold for twice what I paid for it)

- house price inflation which defied logic;
my Brixton dump bought for £10k in the 1970's must now now be worth £500k; my SE London terraced at £34k in the 1980's now sells at £350-400k; a nearby cottage I bought at £70k at auction in 2007 (without a roof or central heating) cost £25k to mend but sold at £180k in 2000.
Wages have simply not risen proportionately.

The global shakedown, as Britain adjusts to no longer leading the world's economies, means these factors are unlikely to recurr- so while good judgement- buying the cheapest house in the best street rather than the dearest house in a cheap area, putting in some 'sweat equity' or just getting lucky might let you move gently up the 'ladder' house are now mostly living machines not cash cows. But then- you'll live longer than me!

ukcarper

AlexMac wrote: »

As someone once said- you can't beat the market (well you can if you're really lucky, but there's always an exception to the rule). The reality is that you are unlikely to live through a repeat of the economic and political context which, quite ridiculously caused 'my generation' (as the 'Who' song of the 1960's called us) to benefit obscenely from house price inflation in the past 40 years.

These historic factor included-
-Willingness to live in a dump while you work on it;
my 1st purchase- a 4 bed terrace in Brixton, S London, for £10,000 (yes, £10k- really) in the 1970's lacked all amenities, and still had coal cooking ranges in the bedrooms.
-Luck or judgement in choosing an area which was being gentrified;
my partner's 1st buy in Greenwich, tripled in value in 2 years in the 1970's as the middle classes 'discovered' run down terraces of 18th and 19th Century workers' homes before the Council knocked 'em all down.

-political ideology amounting to bribery; as governments sold off the most desirable public housing at knock-down rates to sitting tenants and gave tax breaks to individual purchasers to encourage home ownership (eg, a property I bought in 1985 for £37k 'earned' me over £10k in 'Mortgage Interest Tax Relief at Source -MIRAS' in 6 years then sold for twice what I paid for it)

- house price inflation which defied logic;
my Brixton dump bought for £10k in the 1970's must now now be worth £500k; my SE London terraced at £34k in the 1980's now sells at £350-400k; a nearby cottage I bought at £70k at auction in 2007 (without a roof or central heating) cost £25k to mend but sold at £180k in 2000.
Wages have simply not risen proportionately.

The global shakedown, as Britain adjusts to no longer leading the world's economies, means these factors are unlikely to recurr- so while good judgement- buying the cheapest house in the best street rather than the dearest house in a cheap area, putting in some 'sweat equity' or just getting lucky might let you move gently up the 'ladder' house are now mostly living machines not cash cows. But then- you'll live longer than me!

The thing is house prices were almost this high in relation to wages in parts of the 70s and 80s according to Nationwide they are now about 5x average earnings while at times in 70s they were between 4.5 and 5x and almost reached 5x in the late 80s.

Prices were at there lowest in relation to earnings in the 90s so anybody buying then would have benefited the most from the last boom.

Paul_the_Painter

The other way to think about "moving up the ladder" is that when you buy a house you will tend to buy one you afford. Then during the next 5-10 years the mortgage payments get more and more affordable as the mortgage payment doesn't go up, but your salary does. If you use this excess income to either save or make over payments on your mortgage you will have a larger deposit available fort three next house. Let's assume a starting income of £30,000. You are lucky enough to have a deposit of £30,000, and have a mortgage of 4 times your salary. So you buy a house for £150,000.

7 years later, assuming 5% pay rises, but no growth in house prices, you own a house worth £150,000, and a salary of £40,000. You have sensibly saved half of your pay rises over the last 7 years, and so have about £25,000 in the bank. You are also used to saving about £400 per month. Your mortgage outstanding I'd around £100,000 so you sell the house and have £50,000+£25,000 available for a deposit. You now buy the house you love at £235,000 with the same 4x mortgage, and your deposit. Your mortgage payment on the new house will have been around £700/month, your new mortgage will be around £950 per month. But you have been used to saving £400 per month. So the mortgage is actually cheaper than before which leaves you a little spare to do up your new house.

So you have "climbed the ladder" without ever actually changing your monthly outgoings.