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    Property ladder - how does it work?
    • #1
    • 5th Feb 09, 3:38 PM
    Property ladder - how does it work? 5th Feb 09 at 3:38 PM
    This is just something I was thinking about the other night - I was wondering how the 'property ladder' works.

    I know that people usually start off buying whatever house they can afford and then maybe aim to move up to a bigger or more expensive house a few years down the line. Is it simply the case thatduring the time people are in their first property their income increases and then in time they are able to afford something more expensive?

    The reason I ask is that in my case, I bought my first house about 6 months ago, its comfortably big enough for my fiancee and I and certainly one child (maybe two at a push), and we certainly won't be looking to move for at least the next 5-7 years if not longer. The mortgage is affordable with money left over for saving and as long as we both remain in our jobs we will have no problems paying the mortgage.

    However, at some point I would like to trade up to get a driveway, garage, extra bedroom maybe but even though we are able to save, I can't see how we would ever be at a point where we could move up to a 'better' house which might be approx 50k more expensive than the one we're in now (at today's prices). Even more so if we do have children and my fiancee takes time off work etc.

    Just wondering what peoples views are on this?
Page 1
    • Squish_21
    • By Squish_21 5th Feb 09, 3:40 PM
    • 666 Posts
    • 289 Thanks
    • #2
    • 5th Feb 09, 3:40 PM
    • #2
    • 5th Feb 09, 3:40 PM
    In non-recession times you would normally use the equity from your current home to move up. Not the case when it market crashes tho and becomes almost impossible to move on up without HUGE savings.
  • 1399steve
    • #3
    • 5th Feb 09, 3:46 PM
    • #3
    • 5th Feb 09, 3:46 PM
    Well I had wondered about that but even if the market was rising, there would still be a (widening) gap between the value of my house and the one I was looking to buy - so even if I had equity, I'd still need to find extra to trade up?
    • MX5huggy
    • By MX5huggy 5th Feb 09, 3:50 PM
    • 4,164 Posts
    • 2,739 Thanks
    • #4
    • 5th Feb 09, 3:50 PM
    • #4
    • 5th Feb 09, 3:50 PM
    But you could borrow higher income mutipals, extend the term of mortgage to get more money. The good old days!
    • By CLAPTON 5th Feb 09, 3:53 PM
    • 41,650 Posts
    • 30,691 Thanks
    • #5
    • 5th Feb 09, 3:53 PM
    • #5
    • 5th Feb 09, 3:53 PM
    The assumption is that your income will rise over the years so you will be able to get a bigger mortgage and hence a dearer house.

    If your income doesn't rise then you won't be able to step up the ladder..
  • pebblespop
    • #6
    • 5th Feb 09, 3:57 PM
    • #6
    • 5th Feb 09, 3:57 PM
    i had some decent payrises between getting first and second house so could get a bigger mortgage. i am still getting good payrises to hopefully will be able to buy third house in a few years - depending on economy.

    also may buy a bigger house with my partner in future. otherwise it is a case of saving or borrowing more/for longer (i don't think this will be possible now or int he future)
    • silvercar
    • By silvercar 5th Feb 09, 4:38 PM
    • 38,862 Posts
    • 162,320 Thanks
    • #7
    • 5th Feb 09, 4:38 PM
    • #7
    • 5th Feb 09, 4:38 PM
    If inflation runs at say 5% a year, and your pay keeps rising with inflation, after 5 years you have an income that is 27% more than when you started. So you could afford a mortgage that is 27% more than previously.

    If you also get promotions or other pay rises then your income rises even faster and so you can get something even bigger and save even more money while you wait.
  • Wappers
    • #8
    • 5th Feb 09, 4:46 PM
    • #8
    • 5th Feb 09, 4:46 PM
    Hopefully you would have paid off capital in mortgage 1, as per the normal repayment schedule, also you should have been able to save additional money as hopefully your income may have increased and you would have been saving any surplus money. (You should have some buffer income just in case interest rates go to 10%+)

    Then you should have savings+capital+larger mortgage so you can buy house 2.
    • tomstickland
    • By tomstickland 5th Feb 09, 4:50 PM
    • 18,904 Posts
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    • #9
    • 5th Feb 09, 4:50 PM
    • #9
    • 5th Feb 09, 4:50 PM
    The ladder doesn't really exist. There's no magic process by which buying a property makes the next one more affordable or cheaper.
    Happy chappy
    • russ21282
    • By russ21282 5th Feb 09, 5:04 PM
    • 88 Posts
    • 45 Thanks
    People who bought 20 years ago or so, gained huge amounts in equity. I think my parents paid 15k for a 3 bed semi, so they had low mortgage payments and then when they came to sell it they had 150k to put down on the next one due the property prices rocketing over the years.

    Personally, even without this recession, i don't think property prices could have gone that much higher. The level of peoples wages are not going to up enough in comparison unless mortgage lenders would have given something like 10x your wage.

    unfortunately, people who have bought more recently won't see their house price increase ten fold. unless the minimum wage goes up to 50 an hour
  • domcastro
    First house 1999, 86k, wage 21k, 10% deposit. sold 2005 160k
    second house 2005, 147k needed 20k work, 35% deposit, Wage 25k sold July 2008 182k
    Third house Feb 2009, 205k, 52% deposit, 35k wage

    My ladder experience - which of course has happened through the HPC
  • cranezoe
    we bought our first house 4 years ago.
    now have a child and Im only working part time but wage increases mean that we have the same amount of joint income we had 4 years ago.
    we are moving by adding savings.
    we have also paid off capital on the mortgage. (115k-100k)

    So I guess there are a few things: equity, savings, additional earnings and lowering mortgage amount.
  • SiBlood
    Finding this quite interesting as we are first time fact we got our keys today! Our first step onto the ladder has been quite interesting. We have managed to buy a repossession for 145k, when in fact the previous valuation 1 year earlier for the property is 205k! So in theory we have jumped a few rungs up the ladder? We aren't looking to sell for a long long time but I am thinking when we do, we could be in a good position.
  • Crapula
    I think the principle in times of soaring HPI was that unless you got on the ladder your borrowing power was perpetually decreasing in relation to property prices, then your house would increase in value (while the next rung up went up even more) you'd pay off a bit of your mortgage, get a few pay rises and a promotion and be able to borrow more to bridge the gap to the next rung even though the gap will have increased in that time along with the fees.

    No, I don't get it.

    edit: wow some incredible brainfails in the first draft even considering i desired a good quantity of fail in the result.
    Last edited by Crapula; 05-02-2009 at 10:08 PM.
    • stolt
    • By stolt 6th Feb 09, 6:53 AM
    • 2,811 Posts
    • 1,210 Thanks
    bought my first house in 1997 or thereabouts for 45k (run down ed of terrace) sold for 91k.

    second house 153k sold september 2007 for 291k (sold and then in rented until now)

    third house 360k should exchange in a few weeks.
    Last edited by stolt; 06-02-2009 at 6:56 AM.
    Listen to what people say, but watch what people what people do!!
    • Wickedkitten
    • By Wickedkitten 6th Feb 09, 8:06 AM
    • 1,820 Posts
    • 2,135 Thanks
    We rented a huge 2 bed flat for 2 years back in 2004, bought a 2 bed Victorian terrace in 2006 and then in December 2007 the OH got relocated down here so we got a below market price for our house that was still more than we paid for it and are buying a 3 bed semi down here after renting for year that is only 10k more than our old mortgage for a much nicer house.

    Not only that but we got a letter last month saying they found a second buyer for our old house that is getting it at about 2/3 of what we paid for it so we are extremely lucky to have moved when we did.
    It's not easy having a good time. Even smiling makes my face ache.
    • TallGirl
    • By TallGirl 6th Feb 09, 8:28 AM
    • 4,377 Posts
    • 9,054 Thanks
    I my story is this.

    1994 bought new buildt which should have been 3 bed but we felt it was too small so only had 2 bedrooms buildt. Wages DH 20k me 0 cost 86k 95% mortgage. .

    2005 extended on top on single storey garage to get 2 extra rooms cost 30k.

    2008 put in new bathroom, ensuite & cloakroom 15k (for us not to add value or we would have spent less)

    We now have a 4 bedroom house with a double drive and it is definetely worth 250k (smaller ones are selling for 240k around here). We are not looking to move and are so glad our house had the potential to extend.
    Our mortgage is now 13k will be paid off 9 years early.

    So moral of my story is the property ladder does not always mean you have to move to get a bigger house.
  • daveb975
    The ladder doesn't really exist. There's no magic process by which buying a property makes the next one more affordable or cheaper.
    Originally posted by tomstickland
    Exactly right. It is only in times of rampant house price inflation that it makes sense to be on the ladder as the valuve of the money you have invested in the property will be increasing faster than it would in any other investment type. Even then, the price increases are making the next upgrade less affordable.

    There is quite an obsession with home ownership and the 'ladder' in the UK. Without massive prices increases, I cannot really understand why people would buy somewhere to live unless they have the expectation of living there at least 5 years. The costs of moving between 'owned' houses adds to the upheaval of moving.

    Mind you, I hate the idea of moving more than once every 10 years anyway!
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