Climbing the property ladder - how do people afford it?

[Rorysmum7]

Our house is valued at more than we bought it for 4 years ago but I’m sure the houses in this area have all gone up too.

my question is, unless we had substantial income increases since 4 years ago, how do people afford to move UP the property ladder?

We can still only afford the same amount of mortgage as we took out 4 years ago, yes the house has increased in value now but surely thats only helpful when the next house you buy isn’t the same price or cheaper. If all houses in the area increase too, i can’t see a way to do it unless you just save up the difference or use pay-rises for a bigger mortgage?

For us it was exactly that, income increases as we got promoted at work.
Plus overpaying the mortgage to build equity. And saving.

I know a lot of people who bought bigger houses when they got an inheritance though. In fact a lot of people I know that's how they got on the housing ladder in the first place.

We've moved up by moving further away from the city each time, so not a drastic change of area (we're still only about half an hour away from where our first flat was) but enough that each time we have been able to get more space and a bigger garden. Plus for our current house we extended the term of our mortgage to be able to borrow more (although we're overpaying now to try and bring it back down).

I suppose the simple answer is that it's a mix of all the things you've mentioned. Different people will have a different combination of them, making selling one property and buying a more expensive / bigger one a reasonable option.
And different priorities - the concept of what you "need" versus "want" is never the same as what someone else would do.

The ladder doesn't really exist anymore because as you say what you're buying will have increased by the same % which is more cash. Plus moving is so expensive these days & people are getting on the ladder so there isn't the time to build equity.

If I was a ftb now I would forget the flat (unless I was happy to stay there) & go straight for the house.

Otherwise you need big income increases which again is more difficult as ftbs are generally already established due to being older & often plan on having a dc which eats into any of that new income.

Inheritance, that's how most of my friends have done it.

Relocating to a cheaper area.

And yes overpaying & saving but quite hard to save/pay hundreds of thousands.

What you've paid off the mortgage, plus initial deposit, plus increase in house value gives you more money for next deposit. So when we moved last year to a bigger house we borrowed a little more than we did for 1st house, and all the money in the house was our deposit and we went from a 2 bed to a 4 bed and mortgage payments only went up £100 per month.

We only got on the ladder with help from parents & that's true for every single one of my friends & many have had further help to move up the ladder. Not insignificant help either, 6 figures.

And now of course you have to factor in higher interest rates. I know people that have 1m interest only mortgages.

I never bothered. I’m retired and still in the first house that I bought.

Income increases. We earned a lot more in our thirties twenties and more in our forties than in our thirties. We could afford more.

A combination of everything. I moved about 15 mins down the road from my one bed flat to 2 bed house. One london Borough across at that time made a huge difference as where I live now was a cheaper option back then. I've been really lucky that both times have bought in what where then seen as not particularly desirable areas that then became desirable very quickly. When I moved here 10 years ago there wasn't one decent coffee shop and now have loads, plus breweries, restaurants etc. Over that time I've been able to save and household income has increased. Although even with that I'm not sure we could get something bigger exactly where we are so did the loft which has then in turn increased value

So yeah I think moving up often is based on a bit of luck and a bit of compromise. Moving out, less desirable area, buying something that needs work etc

We could only do it by moving out of the city (small 2 bed terrace) and moving to a much cheaper village (3 bed mid terrace). Our 3 bed house was 30k cheaper than our previous house. There is no way we could move to a larger place in our previous city. We only live 20 minute drive or 10 minute train journey from our previous city but the change of location made all the difference.

buying something that needs work etc

not sure thats true today due to the cost of work.

First move was saving and promotions, not stretching yourself to the limit for the first property, I bought a flat rather than a house, so I still had room to save and over pay mortgage. Next house we bought with scope to improve so needed a whole renovation and had plenty of room to extend kitchen and attic. We intend on being here another ten years minimum during which time we will extend. The cost of the work will be outweighed by the increase in property value. It's the whole buy the worst house on the best street you can afford principle. By the time we move we'll only have a small mortgage left, again overpaying where we can. I've also been promoted since we've been here as has DH, I'm likely to get another significant promotion in the next two years if not sooner. If we move again it will be somewhere more rural and can get more for our money anyway. Not going to need more space as we have 3 beds and a plan to put another two plus bathroom in the attic. We only have one DC.

There are 2 factors for us, the first is payrises so we could borrow more.

The second is having stayed in out first house for 8 years, we'd paid off a fair bit of equity so our deposit was bigger- as first time buyers we were constrained by the deposit size at 10% of the value (say £15k) so we couldn't borrow more than £150k.

Several years of overpaying the mortgage (pre-kids and nursery fees!!), and when we moved again we had say £80k in equity and borrowing was then constrained by our salaries (which were almost double what we were earning when we bought our first house). Timing meant we didn't benefit from increasing value (thanks 2008 crash!!!), but that could also have increased our equity too if we'd bought and sold at different points.

Buying houses that need doing up - that adds more value on to the property when the work is done, we do the majority of the work ourselves (not windows or rewiring, get people in to do those jobs). We've never bought a house that didn't need work (unfortunately!)

I'm staying put for a while, improving where I am and enjoying being mortgage free.

You don't have to move up unless space is an issue. Staying small with increasing disposable income is an option too.

Wage increases for us too. So could afford a bigger mortgage.

As equity builds, your next home gets cheaper. To explain,

You start with a 100k loan on a 120k house, say. You pay down the mortgage by 20 and the house grows in value by 20. Now you have 40k equity. Next house you buy is 140. You can take out the same loan as you started with, 100k, but the house is better at 160k value.

Bit by bit you grow equity and your ability to pay higher prices gets more.

The 160k in my example should be 140k, gah.

We "should" have bought the next one up the ladder given our increase in salaries etc. But our house suits us. OK we don't have a guest room, but DCs re in late teens, so not sure why we would add 60-100K to the mortgage just to get an additional bedroom.

So rather than all the expense of the next rung, plus estate agents/stamp duty etc we have overpaid the mortgage and are now, aged 49/52 mortgage free in a largish 3 Bed semi rather than still looking at years of mortgage.

So, we may not have the 4 bedroom detached which would have been the next logical step - but very happy with our choices. Big enough is enough.

My understanding is that -

1. you get your first flat 10% deposit. Equity increases as do you salaries -

2. put equity plus deposit into next property as a deposit - borrow to max of your salaries;

3. depending on your luck and financial situation - never repay the mortgage but downsize back to a smaller place in your 60s mortgage free.

Well that's how I would do it anyway. So no you might not be able to ever truly afford that big house - but you can live in it for 20 years and raise your family in it before going back into what you can actually afford - which might only be a two bed flat mortgage free. Its quite hard in London.

For us it's an increase in salary (not substantial but about 15k between us) more equity (house has increased around 50k since moving 6 years ago) and not buying at the top of the budget in the first place.

For us it was paying off some of the mortgage and adding value by doing up the houses we were living in.