Trying to understand moving up the property ladder, looks like I made a mistake in the first place

1122abc

Is my understanding correct?

Purchased property for 580k in 2021
Current mortgage is £480k
Imagining it sells for 600k (optimistic thinking)
I get 20k profit

I want to buy a property that is max 700k
I need a deposit of 10% - 70k
Plus stamp duty of £22.5k!!!

So I need to raise up to 92.5k

I could get a mortgage of 630k (4.2x income of 150k) so I’ll have to give a 10% deposit 

Is this how it’ll work?

I’m not sure what I’ve benefited from getting on the property ladder in the first place since my initial deposit was 87k. I should have just  continued saving, bought my “forever” home in the first place and saved on the stamp duty and hassle of a chain. 

quotememiserable

Well you're right moving is expensive. If you move you also need to allow for estate agent fee, solicitor fee, removals.

grumbler

You calculations are too convoluted.
Normally you benefit financially because of two factors:

1. house prices rise
2. interest you pay is smaller than (rent minus savings interest on your deposit)

Ignoring (2), yes, if you move up too frequently or prices don't rise fast enough the stamp duty negates (1), especially if you pay higher rate of the STD.
If your estimation is right and the 'profit' is just £20K, it's smaller than than the stamp duty you have to pay. Add the EA's and solicitor's fees and think if it's really wise to move up every two years (and pay more interest to a bank instead of growing equity).

Martico

Two years is no time - you need time to pay down the capital and build equity; in the early years of a mortgage, you're mostly paying interest while chipping away small amounts of capital, but that balance shifts.

Bonniepurple

Don’t forget that the deposit moves up the chain, so, while your deposit might be 70k, you might only need to find 10k of that.

House_owner

You sell your house for 600k, you pay back the mortgage of 480k, you are left with 120K. 
Take away from that the estate agent fees for selling, the solicitors fees for selling and buying and the likely stamp duty on the next house and that is how much you will have available as a deposit on your next house.

hazyjo

1122abc said:

Is my understanding correct?

Purchased property for 580k in 2021
Current mortgage is £480k
Imagining it sells for 600k (optimistic thinking)
I get 20k profit

I want to buy a property that is max 700k
I need a deposit of 10% - 70k
Plus stamp duty of £22.5k!!!

So I need to raise up to 92.5k

I could get a mortgage of 630k (4.2x income of 150k) so I’ll have to give a 10% deposit 

Is this how it’ll work?

I’m not sure what I’ve benefited from getting on the property ladder in the first place since my initial deposit was 87k. I should have just  continued saving, bought my “forever” home in the first place and saved on the stamp duty and hassle of a chain. 

Your property's current value, minus mortgage owed, is your profit/equity (ie £120k approx).

As mentioned, moving costs and expenses are why you really shouldn't aim to move every couple of years - not in a falling or static market, anyway.

PS you're not going to have paid off much of the mortgage in 2 years so it's prob not far off what you started with - another reason not to move so quickly!

grumbler

bryanb said:

600k minus 480k not 20k

And? 480 is the mortgage balance, not the purchase price.

hazyjo said:

1122abc said:

Is my understanding correct?

Purchased property for 580k in 2021
Current mortgage is £480k
Imagining it sells for 600k (optimistic thinking)
I get 20k profit

I want to buy a property that is max 700k
I need a deposit of 10% - 70k
Plus stamp duty of £22.5k!!!

So I need to raise up to 92.5k

I could get a mortgage of 630k (4.2x income of 150k) so I’ll have to give a 10% deposit 

Is this how it’ll work?

I’m not sure what I’ve benefited from getting on the property ladder in the first place since my initial deposit was 87k. I should have just  continued saving, bought my “forever” home in the first place and saved on the stamp duty and hassle of a chain. 

Your property's current value, minus mortgage owed, is your profit/equity (ie £120k approx).

Equity - yes, but not profit. Equity includes the deposit.

not in a falling or static market, anyway.

Generally, falling market is good for upsizing as the price gap between what you sell and what you buy gets smaller.

housebuyer143

Yes, this is why people shouldn't be buying with the intention of moving one or two years down the line. Moving is very expensive and there isn't time for house prices to increase.

Jenny7026

1122abc said:

I’m not sure what I’ve benefited from getting on the property ladder in the first place since my initial deposit was 87k. I should have just  continued saving, bought my “forever” home in the first place and saved on the stamp duty and hassle of a chain. 

If you buy a £700k house as a first time buyer (or more specifically, any house over £625k), there is no stamp duty discount and you pay the full amount. So I suppose you'd have saved on whatever stamp duty you paid for the first house, but the stamp duty on the £700k house itself is identical whether or not it's the first house you've ever bought.

Petriix

Yes, you totally misunderstood the way the property market works. The only way to 'cash in' on the increase in value is to downsize or move to a less desirable area. If you're looking to 'move up the ladder' then you're better off if prices fall significantly. Having a big mortgage, however, is not ideal in a falling market with interest rates climbing.