Housing ladder- how did you work it?

[Housingdestressnotdistress]

Would love some advice and to hear your experience please!

if you can’t renovate to add value (building costs and street ceiling prices) how do/ did you move up the ladder? Is it just a case of building up equity? And taking on the same or slightly bigger mortgage but with larger salaries so you can pay it off in the same amount of time as the first house?

we’re thinking about how we’d go about upsizing. We want a slightly bigger house in a different location within the same area (ideally an area 2-3miles away from where we are now). The area we’re in is described as ‘up and coming’. We can’t afford the houses we want in the location we want yet and also houses rarely come up for sale there. If the area does ‘up and come’ the houses 2-3 miles away will be a lot more expensive and increase by more than where we are now because of where the regeneration plans are. so we’d gain a little from the sale of our existing but pay more for the onward purchase.

Are our plans impossible?

Pay your mortgage down as quickly as you can. That's your equity and also keep saving if you can.

Then you sell and stretch again but should have a decent deposit.

That's how the housing ladder used to work.

Now it's buy a house, hold it for 5 years, sell for 30-50 % more without doing much to it.

For us:
Flat (so no option to extend etc), sold after 2 years for £365k, moved out of city and bought 3 bed semi for £355k. Still on train line into same jobs as before.

Was in 3 bed semi for 5 years so it gained value and also we gained equity. We also added on a lovely garden room which may have helped (used year round as dining/play room). Sold for £425k ish

Moved across the neighbourhood to a house with same footprint as other 3 bed semi but room to extend which we are about to embark on. We do have a big mortgage (years-wise!) and hopefully this build will up the value of the house so our our LTV will improve.

@Fooksticks would this only work if 1) our savings and salaries grow that the same rate as house prices increase though?

@MyFaceIsAnAONB if you had an the increase in equity from your sale did you also see an increase in price at the new place?

Can only speak about me and DH (property in London) but we bought our first property mid 20s (a flat) and held for 5 years. The mortgage was based on our salaries at the time (although we didn’t take out the full mortgage that we were allowed as we didn’t need to). We built up equity and sold 5 years later and bought a family home using a combination of equity, and a mortgage based on our new increased salaries. We maxed out mortgage at this point (we were 29) as we were confident our salaries would continue to increase in future and family homes round here are always bidding wars.

If we needed to up size again I’ve said to DH I wouldn’t take on any additional mortgage now (even if increased salaries let us), so we’d have to move out of London or something. This is just my personal view for my current life situation. To be honest this property should be fine long term.

Hope that helps

Overpaying the mortgage got us the next step up. We made very little money on our last house - sold it after 15 years for what we paid for it. It was overpaying the mortgage, and increased salaries, that let us move.

To answer some of your questions directed at other people. Again I can only speak about my experience!

Round here in zone four London flat prices are pretty stagnant as there are plenty of flats! We only saw a very small increase in our flat from when we bought to when we sold. Family homes round here are hot and still continue to go up dramatically (supply and demand I guess - there’s never any up for sale and we are in a popular family area).

So it was beneficial for us to get on the “family home” bit of the property ladder and off the “London flat” bit of the property ladder as our flat was never going to keep up with the family home increases.

The housing ladder concept doesn't really exist anymore.

Largely because entry prices are so high, FTBs are older & things like stamp duty. Now add in renovation costs & higher interest rates.

Yes if you can buy a flat at 21 you can probably make it work. If your a FTB in your 30s though go straight for the house (unless you are happy to stay in a flat).

Oh & of course we've had wage stagnation & frozen tax bands which is just a stealth tax so even paying off extra on mortgage is difficult. That's before you look at pension savings, student loans & any childcare costs.

If the area does ‘up and come’ the houses 2-3 miles away will be a lot more expensive and increase by more than where we are now because of where the regeneration plans are. so we’d gain a little from the sale of our existing but pay more for the onward purchase.

It's easier to upsize in a falling market.

So it was beneficial for us to get on the “family home” bit of the property ladder and off the “London flat” bit of the property ladder as our flat was never going to keep up with the family home increases.

Yep lots of flats sold in the last few yrs are the same value now. Pre covid my brother would have bought a flat in z2/3. He recently just bought a house in z4 for 650k as the houses weren't getting cheaper.

Bought a small garden flat in 2008 at peak of market so stayed 10 years (cramming two kids into it too!) in order to pay down enough and for it to raise a bit in value.

Moved to somewhere twice as big but in a less desirable area in time for covid lockdowns etc (don't know how we would have coped in the teeny home).

The general rise in prices in our area, coupled with overpaying mortgage means when we come to look at selling in about 10 years time, we will have 75% equity. As we bought young, we will still have 25 years ahead of us for mortgage term if we want to. But we won't.

So then we will move into a nicer area, downsize again, as dc will be young adults and off to uni etc so two small rooms for them plus space for us.

Other friends of ours did the big family home much much sooner, but they were unlucky enough to lose family members earlier than expected so had inheritances, and some just had general family help etc.

Thanks for all the replies.

we have a small three bed semi. Nearly all our neighbours have children (we don’t) so on paper we are on the ‘family home’ ladder.

i think the ladder for what we want to do means build up equity to increase deposit for next house, and then either increase the mortgage for the more expensive house, and then downsize when we get to retirement to be avoid paying for a mortgage. Wondering if this is normal, or if we’re ‘supposed’ to use the ladder to upgrade to a bigger house each time with the same mortgage so we retire in the bigger house

You save up a bigger deposit and get a bigger mortgage because your salary has gone up. It’s difficult because it means you’re constantly saving instead of enjoying your life. And although your salary goes up your hours might reduce because you have kids, and your expenses will drastically increase, so maybe you never have the money to upgrade. Many people struggle to ever move up the ladder, they have to wait for inheritance and use that to move up.

For us, we sold a one bedroom flat in the city for £108k, having bought for £90k , bought a 3 bedroom house in the suburbs for £163k increasing our mortgage and never moved again.

Our house is now worth upwards of £400k as we added an extension and our mortgage is paid off. If we had moved up to a bigger property, our financial position would be much trickier. Our circumstances are fairly individual in that dh is older and we wanted our mortgage paid off before he retired.

It’s tough with housing prices so high, don’t know how people afford the prices.

Wondering if this is normal, or if we’re ‘supposed’ to use the ladder to upgrade to a bigger house each time with the same mortgage so we retire in the bigger house

This is a bit mad. The expression 'the property ladder' is supposed to make you feel pressured into 'climbing' something that's essentially an imaginary construct. You don't have to do anything of the kind, obviously, or to feel you're 'supposed' to live in a particular kind of home, or to 'aspire' to a particular kind of home.

If your family has outgrown your current house, or there's a specific, real reason you want to live in the other area, that's obviously a reason to move, and to try to figure out how to afford to do it, but you absolutely shouldn't feel you're supposed to be eternally 'climbing the property ladder' or 'downsizing to give the children deposits' as some kind of abstract social commandment.

That was probably bad phrasing on my part. I meant the idea of us moving to our desired house and area and be mortgage free in retirement seems somewhat impossible to us. Lots of people talk about climbing the property ladder to achieve that. Not about doing it because the ‘property ladder’ tells us to.

Some comments here aren’t helpful as it’s no use knowing what happened to others in the past. Today, the housing market is very different to a few years ago. No one knows if we will see house prices rising at similar rates to the past. The only thing you can do is get a mortgage for as large as you can comfortably afford, with contingency in place, and the best house that could meet your needs for the next 10 years. Then review the situation. Gone are the days of buying a property and moving every few years until you get the family home- as house prices are so high, stamp duty is high, renovation costs are very high, and detached homes increase at a faster rate than other types

Pay as much of your mortgage off as possible. This will be your new deposit. Then look at what you can borrow from your current salary.