Moving up the property ladder

boo80

Hi all, We've been in our house for about 4 yrs now, it's a nice area and we're really lucky to have what we have; but, we just feel we're outgrowing our house now. It's a small 3 bed mid terrace with quite a small garden. I'm 7 months pregnant with our 3rd child, and I home educate the older 2, and I just think we really need more space to live life to it's full potential.

Houses on our estate are selling for around 205k - 220k, and we have a 85k mortgage. I am self employed and was earning so little we got more without me being on the mortgage, but now I'm thinking if I could get a part time job on top of my little business it may increase our earnings enough to get somewhere bigger, but unfortunately an extra 35k doesn't seem to get anything bigger/nicer where I am.

I can see 2 options for us - move an hour or 2 away and get a bigger house on a bigger plot for the same money, or try to increase our earnings enough to move somewhere bigger in the next few years (but with 3 children to provide childcare for this may be a challenge!) Have I missed any options? How on earth do people manage to move up the ladder? Is it all to do with timing and promotions?

moment_2

The mortgage free wannabe is a good forum & gives examples of people budgeting to clear there mortgages hope that helps

Turnbull2000

Moving up the ladder has historically been achieved through earnings growth and inflation, not house price growth (which makes it harder).

Saying as earnings growth is and will continue to be extremely low (and house prices won't fall), ever lower borrowing costs seems to be the new trend. Have you tried researching the income Help to Buy scheme? This will cover existing properties from next year, you could potentially enjoy a mortgage rate of 2-3%, allowing you borrow more and pay a high price.

ValHaller

Turnbull2000 wrote: »

Moving up the ladder has historically been achieved through earnings growth and inflation, not house price growth (which makes it harder).

While I kind off agree with your point, at the bottom end of the market, house price growth has played its part from time to time in giving growth in equity, leveraged by a high LTV ratio. For example, if a £100,000 house appreciates by 50% and the initial LTV was 90%, the equity has increased by 500% and the LTV becomes 60%. It is the reverse of negative equity and when coupled with wage inflation has allowed people to move fairly rapidly between houses accumulating a lot of equity on the way.

boo80

Thank you moment; I hadn't thought to look there as we'd be taking out a bigger mortgage (hopefully), but it does make sense!

Thank you Turnbull2000; I'll have a look a Google and see if I can find out some more on that scheme.

ValHaller; it really sounds like you know what you're talking about but it's gone straight over my head! We were fortunate to buy during a bit of a slump in 2009, so we paid quite a bit less than most of our neighbours giving us some equity in the house, but it doesn't count for much in Surrey! x x

SG27

ValHaller wrote: »

While I kind off agree with your point, at the bottom end of the market, house price growth has played its part from time to time in giving growth in equity, leveraged by a high LTV ratio. For example, if a £100,000 house appreciates by 50% and the initial LTV was 90%, the equity has increased by 500% and the LTV becomes 60%. It is the reverse of negative equity and when coupled with wage inflation has allowed people to move fairly rapidly between houses accumulating a lot of equity on the way.

I don't agree. I've thought about this a lot since buying my first house. If when you buy that £100k house the step up is costing you £150k then after the 50% increase your house is £150k (£60k equity now) but the next step house is now £225k. So even with your new £60k equity you still need to borrow £165k! Whereas when you first bought your 90% mortage was just £90k. And to move up with static prices would have meant borrowing £140k. So in this case a 50% rise in prices cost £25k more.

I haven't taken into account repayments of the capital to keep it simple but if like the op someone is looking to move within 5 or 6 years the capital paid off wont be that much anyway.

boo80

I've got one more question; We're on a fixed rate mortgage until September 2014, we can (but never do) over pay by 10%. Would we be better off saving our money to either put into the next house or when the mortgage comes up for renewal, or making over payments with any extra money we have?

SG27

boo80 wrote: »

I've got one more question; We're on a fixed rate mortgage until September 2014, we can (but never do) over pay by 10%. Would we be better off saving our money to either put into the next house or when the mortgage comes up for renewal, or making over payments with any extra money we have?

It depends. If you can get a savings account that pays a higher rate than your fixed mortgage after tax then it's better to save. If not mind then it's better to overpay. Although remember you can't access overpayments like you can savings should you need it.

boo80

I really have no idea how these things work (as I'm sure you can tell), if we over paid in the last year of the mortgage, does it make a difference to the interest we pay in that time? I guess it would? I'd just figured we were going to pay the Woolwich £xxxx in interest, but I guess the less we owe the smaller the amount of interest we pay? Sorry, I'm a bit dappy anyway, and the pregnancy isn't helping matters!! x x

ValHaller

SG27 wrote: »

I don't agree. I've thought about this a lot since buying my first house. If when you buy that £100k house the step up is costing you £150k then after the 50% increase your house is £150k (£60k equity now) but the next step house is now £225k. So even with your new £60k equity you still need to borrow £165k! Whereas when you first bought your 90% mortage was just £90k. And to move up with static prices would have meant borrowing £140k. So in this case a 50% rise in prices cost £25k more.

I haven't taken into account repayments of the capital to keep it simple but if like the op someone is looking to move within 5 or 6 years the capital paid off wont be that much anyway.

I did say 'from time to time' - now is not one of those times. I agree that captital paid off over 5 or 6 years would be trivial - more so with the high interest rates at those times

At the times when it applied, wage and house price inflation were both distinctly positive. So the step up mortgage of £140k on static prices was equivalent to £210k by the time you stepped up in terms of affordability. But you actually only needed a mortgage of £165k on inflated prices as you have shown. So actually, you could mortgage for £210k and get a house for £270k with your 6k equity. Effectively, you could step from the £100k house to one which would have been £180k in 1 step and no increase in real terms on your monthly outlay - just by keeping your nose clean with the lender.