Does the ‘housing ladder’ concept work nowadays?

[MidnightPatrol]

Does the concept of the ‘housing ladder’ really work nowadays?

I own a property, in London. It took me until my mid-30s to buy it. It’s fairly small, meets our needs for now.

To ‘move up the ladder’ would cost huge amounts. To buy a slightly bigger house would cost another £3-400k I think.

Plus of course stamp duty (which might be 25% again on top of that).

In five years years we have paid off maybe 10% of our mortgage… but even with a hefty mortgage, it doesn’t add that much to our equity component. Any price increase in our house is offset by the increase in bigger properties.

And of course because of our age, we already really into our ‘peak earning’ years.

Having spoken to my friends, most seem to be expecting to stay in their current property for the same reason. It’s so expensive to upgrade - and you can’t really do that more than once because the tax implications are so massive.

This may be exclusively a London / South East issue, but I often see reference to the ‘housing ladder’ and the maths just don’t work IMO.

I think that inheritances or buying as a single person and buying with amother single person are the only ways to climb the ladder really because jobs where wage rises outpace cost of living are unusual.

Imo no. Anyone who says it is out of touch. You can’t buy a cheap property, sell it and gain loads of equity anymore or not easily anyway. Moving costs are high. Things are so turbulent. It’s why we’re stuck as first time buyers, I want to buy a house we can reasonably afford and stay in for at least 10-15 years.

I suspect a lot of people are buying their first property at the point (historically) you might be on your second or third property.

This means your wages aren’t going to be increasing as dramatically.

I see FTBs criticised for ‘wanting it all’ buying a house as their first property, but like your personal example, I think this is mainly driven by people being in their mid-30s with kids and knowing they’ll probably be in it a very long time.

In London there is no such thing as a ‘doer-upper’. There are dilapidated houses yes, but they cost exactly the same as a fully developed and immaculate one minus exactly how much the estate agent thinks the work will cost.

I agree - for all the reasons you say, OP. The gap between rungs has got way bigger with people getting to the first rung after the peak growth years in salary.
To be fair though, I think the whole housing ladder has always been a bit niche. Loads of people buy a house to bring family up in and stay there until they retire.

Nope. It most definitely doesn't exist. We bought our first house a few months before my 30th birthday. We knew we wanted to get married shortly after that and have kids. We bought a house. We did make a slight compromise on the location to get the size of house within our budget. We could have bought a flat in the desired location but a house was more important to us. You could say we skipped a couple of steps on the housing ladder.

We have since moved away from that house to another semi in an area we liked. Compromise was that it needed all sorts of work doing to it; we still have the 30+year old kitchen and are yet to rewire a couple of rooms (one plug socket in each).

The first was affordable because of location but even then, we borrowed the maximum the bank would lend us and we had a tiny deposit to afford it. We afforded the next one due to price rises; not particularly from what we had done to the house to increase its value. We realised 40% increase in value without having done much to the house.

I can't see how we could continue climbing the ladder now; I don't think we can earn much more than we do now and even if we did, we are at the point where we are thinking about pension pots/kids getting older so uni/weddings/first homes. I'm happy in my current house could stay forever. The only way someone like me could continue up the ladder is possibly through inheritance but then again, I would question what are we trying to achieve - in my semi - we have all the space I have ever wanted in a home and a good size garden.

No, I don't think you can expect to make a profit on a property nowadays, and use that extra money to upgrade. Even if you do renovations, you'll probably only make your money back based on what you spent.

Yep completely agree OP. We’re in London and our kind of Victorian terrace (4 bed) costs about £900k. To get the next size up in the same area - say a 4 bed Edwardian semi - you’re looking at £1.4m+stamp duty. It’s mental. We’d love a little bit more space but it isn’t happening.

No, it's a completely outdated concept, certainly in the south east.

The gaps are too big, completely out of step with wage growth and the stamp duty is too much money to make moving regularly sensible.

Agree OP we bought what we thought was a starter home 15 years ago, really stretching ourselves. Then we had kids, things changed etc. By the time we started thinking 'maybe we should move up the ladder' we realised the next rung up was £300k more and with stamp duty it would put us in a very precarious situation as we approach our 50s with limited earning growth.

Thinking now of how to improve what we have and just pay down the mortgage. I don't want to get made redundant and lose a big shiny house.

Yes…

Not only £500k more in price (how many years are people going to have had to paid down to accrue enough equity to make this realistic?) but £81k of stamp duty to boot!

The cost of stamp duty seems wildly out of proportion vs the benefit of moving.

And that’s one move. Doing that once would seem like an extraordinary outlay, never mind considering doing again a few years later.

It does not. The first rung is far too high, the jumps are too huge. Stamp duty is huge barrier as well in my opinion. Moving 3/4 times could easily cost £100k in stamp duty alone, just daft.

For a family home in London, you could be spending £100k in stamp duty on one move now!

Agreed. The only way to move 'up' the ladder is, imo, to move 'outwards' as well.

Or do what we have ended up doing which is use our increased equity (we benefited from buying 15 years ago) to be able to get a 50/50 interest only mortgage which we may or may not pay off by the time we retire (we'll sell if we don't).

I still don't get how an extra bedroom and a little bit more living space was basically costing us £3-400k more.

Yes exactly @drawnfrommemory - in my case it’s an extra £500k and it doesn’t even get you an extra bedroom, just slightly bigger rooms and a non-claustrophobic hallway. It’s depressing.

I think the increased equity bit is the problem now.

If you bought in recent years, you are going to be buying at the max of your budget, at an older age, in a time when prices are hugely increasing y-o-y as before… model doesn’t work any more.

It’s crazy that it can cost £3-400k for basically a couple of extra rooms. And not a really fancy luxury property decked out with the best in everything - just you know… an unremarkable terrace but where the third bedroom isn’t in the roof space.

An odd side effect of this where I live in that some of the houses are really squeezing a lot of people into them. Family of four in a two bed cottage. Three teenagers in a three bed with two in the loft.

But… these are still very expensive properties and the families that can afford them will be earning pretty big salaries.

It’s not what you would imagine if you heard their headline income…!

Nope. It's almost impossible without inheritance. We're in the south east. Bought 8 years ago, skipped a couple of 'rungs' because we were mid-30s and wanted to start a family so maxed out what we could afford to get a small 3 bed.

We need more space now, but even moving further out would be 300k+ to make it worthwhile (would like a study or 4th bedroom, second bathroom and bigger garden). The stamp duty would be most of our actual savings. The Liz Truss mortgage increase hasn't helped either. Our only chance of moving is inheritance, but I'd much rather our parents enjoyed their old age and had comfortable care homes of necessary.

I wish we were paying that much 🤣 we're commuters so "only" looking at £20k sd for an extra bedroom a bit closer to the station. Bonkers, because it really locks starter homes like ours out of the market.

Yes interesting point - because people can’t move ‘up’ there are less starter homes.

It also means the small properties are being extended and so on, so then out of reach for FTB too.

£100k stamp duty would be a £1.5m property, which is a pretty ordinary family home across much of London.

@SnapdragonToadflax a few posters have said about it being ‘worthwhile’, I think as someone else said the gaps between the rungs ate so huge you can’t really ever consider it unless you have some kind of windfall. I mean £300k to add enough space to make it worthwhile - that’s the average cost of a house in the UK, it’s crazy.

Agree with this, 10 years ago we were able to jump on the ladder with a starter flat, to a modest 3 bed and then to a big house through saving hard for the first deposit, adding some value, and also the properties naturally rose in price. Plus there were small-ish jumps in price up to the next option, which we could afford by earning more, borrowing more, saving and we had also paid down our mortgage at the same time. Stamp duty was a lot but living costs were lower such as gas / electric/ food / petrol etc plus building work was cheaper. And moving costs such as removals, solicitor etc. It was easier to save for the next house. But those were our childfree days and as a SAHM things are stretched!! 😅 just couldn’t imagine ever being able to move again, but our mortgage repayments now are big enough and wouldn’t want to add to this

No, not any more.

And it’s so infuriating reading comments on the Property section from posters who benefitted from it, think it still exists, and hark on to current FTBers about it!

i could afford a new property, as my mortgage is paid off, on my 2 bed london flat.

But it would cost SO much more to move, for a slightly bigger flat. Or move miles out of london for a bit bigger house.

Plus stamp duty. HUGE wasted sunk cost.

As its just 2 adults, we stay in our 2 bedder as its easier. won't sell until we really want to move to another city.

You said in your first post that stamp duty could be an extra 25% but the maximum stamp duty is 12% 🤷‍♀️
I think it very much depends on where you are, here in the midlands it's a lot easier to buy a small terraced house to spend a few years making nice and then move on. Although costs have gone up in recent years there's always been stamp duty for mid range properties.

Extra 25% of the additional cost of the new property.

You spend an extra £3-400k on a house with a bit more space, but the stamp duty on that move could easily be £75-100k.

I can see that in areas where the prices are lower it is more achievable to use the ‘ladder’ concept - being able to buy earlier, the ‘rungs’ being smaller etc.

Yes and no. I think in the last few decades the idea of the ladder has been distorted due to house price increases.

I'm not from the UK, but growing up the "ladder" consisted of a couple buying a house when they were ready to start a family, and then 10-15 years later upgrading to a bigger house (if they wanted to/were able to) when their children were teenagers and they needed more space. This was achieved through a combination of an increase in wages, paying off the mortgage, and additional savings. Maybe also a small increase in equity due to prices rising, but nothing like what we've seen in the last 20 years.

The idea of a ladder where you go from a flat, to a 2 bed house, 3 bed, and so on, moving every few years, is something that is only possible with huge price increases. Let's face it, most people don't have massive pay rises every few years and you are unlikely to have paid off much of a mortgage in that time either. Moving is expensive, and the only reason people were okay moving up the ladder in that way is because all the taxes and fees were being paid through "profit". While that system may have benefited some people for awhile, it's not sustainable as we're seeing now.

I think it's a good thing that we're seeing that system falling apart. Hopefully it means a return to the more traditional definition of the housing ladder.