Never to get back on the ladder...

NorthernSky_3

No doubt I'm in the same situation as many others, but just felt I needed to share my scenario.

I met my wife 9 years ago. Both of us were living in rented accommodation. When we took the step of moving in together we continued to rent, and a few years later I we had a wonderful baby boy. So at this point, we decided to look at the options of buying.
Not having much if any in the way of savings, we discovered the Together mortgage by Northern Rock. It was perfect, and got us onto the property ladder. The property wasn't in a great area, but we knew that there was a few years before we needed to worry about schools for my son. So we planned to live in the property, let it grow in value, then move up the ladder to our desired area. This was September 2007... the month before everything went belly up with the market.

So we were stuck in an area we didn't want to be in, with no good options. After a few years and no market recovery and another child arriving, we decided to sell up and rent. As a stroke of luck, we managed to sell our property for a few thousand less than we bought it - decided to take the hit in order to get to our desired location, and now rent. Our monthly rent costs are more than our mortgage was, but it's worth it to live where we are.

Our situation now is that we are living exactly where we want to be. My oldest son is at a fantastic school, my youngest on the waiting list. It's all good...

Except, it sticks in the back of my head that we are both now in our mid 30's, and I really can't see us ever buying a property again for these reasons:

- It would take too long to save up a deposit.
- In order to get back on the ladder, we would more than likely have to move back to a less desirable location, which is not an option.
- Property values are not increasing at a rate to 'move up the ladder'.

I really wish there was another option, but it looks like we're stuck with the insecurity of renting forever. I really can't see any other options.... other than the lottery!

Any thoughts or similar stories would be great to hear

WashingTime

Thanks for sharing NorthernSky - whilst you were dealt a terrible hand with the timing of your buy / the crunch, you've clearly done an excellent job in getting things on the straight and narrow.

Please forgive me for saying, but two things spring out:

1. It seems like the notion of the 'property ladder' is misunderstood. It's not the case that if your house increases in value then you move up the ladder ... because everyone else's will have done the same. The idea of the ladder is that you increase equity (via repayment mort.) and that with an odd promotion, you might be able to take a small step up. Not a divine right tho!

2. Now that you've decided to live in a nicer area with better schooling (which I quite understand), how do you intend to pay for accommodation when you no longer work (i.e. are retired)? I hope you're in a damn-good pension!

I should add that, as a tenant for the last decade, I absolutely understand how great it can be to rent (we're very transient with 6 different houses in that time - and no worries about maintenance). But equally, we've been really disciplined in making sure we save as much as we spend in rent so when the time comes to put down roots (which may be in retirement), there's some £££ in the bank!

SG27

Can you explain how property prices increase helps you to move up the ladder?

NorthernSky_3

Hi WashingTime.
Good points you've brought up. To be honest, the thought of where we'll live when not working isn't something that we've really thought of! I guess that's something to add to my plans... thankyou!

I think you're right... I've not used the term 'property ladder' correctly. Examples I can give are my sister, who bought a house for £47k.. 8 years later and it was valued at £130k. I also have a friend who bought and sold every few years over a period of time, and managed to accrue equity of £25k from interest only mortgages only using the increase in house values. (maybe he was lucky.)

One twisted comfort is that we will have inheritance from our parents who are both homeowners, but I hope that it isn't for another 25 years if you know what I mean.

So you've rented for 10 years... that's really interesting to know. Have you relocated six times by choice, or have you had to move on for reasons out of your control? I think that is the part that unsettles me, is that the security isn't there.
There are some true benefits of renting that you have mentioned too.. I also try to look to the other countries in Europe who actually have more people renting by choice then buy later in life.

artbaron

You're right; to buy a nice, big house in an ideal area without saving any money you need to win the lottery.

WashingTime

The two examples you cite are interesting - the increase in value in your sister's house I bet didn't make the blindest bit of difference to her life until she needed to move. Even then it's about the relative price difference between her house and the one she wanted to buy. In fact in this case, market falls are helpful to those wanting to trade-up because they reduce the absolute cash disparity between houses (of course you still need the cash to buy).

You 'trading-up mate' just got lucky with interest only mortgages. That ain't gonna happen again for a long time (see Cov Building Soc).

Sorry for constantly being a pessimist, but your reference to inheritence scares me again. Clearly you know more about your position than me, but if you're thinking about how much your parents' house is worth, knock-off £30k each for possible care contributions, a bit for selling fees and other expenses and then divide by the number of siblings (grandchildren too perhaps)?

Do you think you've got a long-term idea about your financial health? And please don't think I'm being harsh, because I'm so sympathetic to you being screwed by the market crash in 08.

Onto me ... yeh, always through choice. Some long-distance moves for work/phd, others just across town as we fancied a change. The saving tho has remained constant - at least as much as we pay in rent goes into our savings fund. Of course, that means we could always have lived in far nicer homes but that would have been short-term indulgence.

If you're concerned about security of tenure, why don't you look for a longer lease? I'm sure a landlord would bite the hand off a good tenant happy to sign-up to a 3/5/10yr lease (but beware of your liabilities).

I completely agree with you living in the area you do to provide the best for your children which seems a smart choice. I guess the flip-side is you need to be as focused on your long-term financial position. Start with small steps - just to increase your savings rate. The Debt Free Wannabe board has some great tips and people, even for those who aren't in debt per se.

Remember that as well as a happy childhood with a good education in a nice area, your children will also want you to be happy and secure for the long-term. Might they feel guilty if in 30 yrs time you're struggling?

ruggedtoast

Have you gone on the council list? Probably a waste of time but you never know, and if god forbid you lose your job at least you'll be on it.

Unfortunately as you've found, private renting is not great when you have a family. Hopefully as more people rent then pressure will be brought to bear on the government to increase tenants rights.

I write to my MP once. It was in 2007, I said that Labour were about to wreck the economy and housing was a nightmare.

He sent me back a patronising letter telling me what a thoroughly great job Labour had done with the economy and sending me a small phone book in photocopies about keyworker housing; despite the fact I'm not a keyworker.

NorthernSky_3

Thanks for taking the time to reply WashingTime, your comments have been valuable. It's really helpful to get somebody elses take on things, and you've sure got me thinking on a broader timeframe - I'm a real culprit of living for the 'now' but I'm starting to realise that I need to start looking more at the future.
Think I'll contact our landlord and ask on their views of a longer contract too.

wanchai_2

WashingTime wrote: »

Thanks for sharing NorthernSky - whilst you were dealt a terrible hand with the timing of your buy / the crunch, you've clearly done an excellent job in getting things on the straight and narrow.

Please forgive me for saying, but two things spring out:

1. It seems like the notion of the 'property ladder' is misunderstood. It's not the case that if your house increases in value then you move up the ladder ... because everyone else's will have done the same. The idea of the ladder is that you increase equity (via repayment mort.) and that with an odd promotion, you might be able to take a small step up. Not a divine right tho!

2. Now that you've decided to live in a nicer area with better schooling (which I quite understand), how do you intend to pay for accommodation when you no longer work (i.e. are retired)? I hope you're in a damn-good pension!

I should add that, as a tenant for the last decade, I absolutely understand how great it can be to rent (we're very transient with 6 different houses in that time - and no worries about maintenance). But equally, we've been really disciplined in making sure we save as much as we spend in rent so when the time comes to put down roots (which may be in retirement), there's some £££ in the bank!

We do the same, we have about £78,000 saved between us so far. When we do buy we want a very small and short mortgage (ideally >10 years).

moneyistooshorttomention

NorthernSky wrote: »

One twisted comfort is that we will have inheritance from our parents who are both homeowners, but I hope that it isn't for another 25 years if you know what I mean.

.

From looking at your age (mid-30s) and this "another 25 years" then it looks as if you are assuming that any inheritance will turn up in your late 50s/about 60 years old. This is the case for many people - but many people are living into their 80s and even 90s. With that - you could be in your 70s (ie old people yourselves) before any inheritance is there.

Even assuming that the Government doesn't "grab the lot" for carehome fees - don't assume that anyone who remains in their own home won't be charged for any "care at home" they need. Even if neither of your parents need care - in or out of a care home and so no money gets grabbed for that - there may well be other health costs. The NHS is now "going up a gear" at rationing health care (yes...I know...I know...they are still spending on luxuries for some people etc - but that isnt stopping them!). One of my parents safely had both cataract operations they needed okay and then the second parent decided to have theirs. Parent 2 safely got through having one eye done - but the "NHS shutters came down" at that point and the NHS has been trying to persuade her that the 2nd eye doesnt really need doing after all (even though it obviously still does). Parent 2 is fighting the NHS about this and I anticipate will win the battle and make the NHS deal with this - but if they hadn't fought them, then they would have to pay about £1,500 out of their savings to get it done privately. I anticipate more and more cases of the NHS trying to persuade that they don't need health care that they DO need in order to try and save themselves money and some of the people on the "receiving end" of this attempted rationing will pay their own medical bills rather than fight the NHS to make them do it on the one hand or will fight the NHS but not succeed in their fight and will have to use their own savings for those costs.

MobileSaver

WashingTime wrote: »

as a tenant for the last decade ... Of course, that means we could always have lived in far nicer homes but that would have been short-term indulgence.

Ten years is "short-term"?!??

I can see where you're coming from but for most people life is for living and there are risks with your approach such as:

- you could be hit by a bus tomorrow leaving you and/or your partner regretting you didn't enjoy home life more
- you get so used to renting/saving that you never actually get to the point where you are prepared to make the commitment to buy
- the biggie: your landlord out of the blue decides to issue a Section 21; for most people being forced to move out of their home would be one of the most upsetting and stressful experiences of their life.

For the OP it's great that you're even thinking so far ahead. An alternative to winning the lottery would be to increase your income... have you considered progressing your career or maybe starting your own business?