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.

There has been a ladder for us and for some friends - but I’m well into my 40s? Maybe why? I went from buying my own flat to a house with DH and we are buying a bigger house right now.

Apart from the first flat, I always had very high LTV ratio, payed down mortgage aggressively etc. but it’s tough for sure - and tougher for a generation who can‘t buy as early on in life.

I agree OP. The housing ladder only really exist for those who have bought a few years ago and are jow benefitting from a big increase in house prices + maybe increase in wages since they first bought.
Given prices are now at their highest and so are interest rates, I don’t see how FTBs in their 30s or even 40s will ever be able to upgrade unless they have some inheritance or big family help.
We are a family of 3 in the London suburb and can only just afford a 2 bed (costing well over half a million) and I doubt we will ever be able to upgrade

OP I bought at 26 in London, a 400k 2 bed flat with my DH and i don't think the housing ladder works for me. I am at peace with that because my motivation for buying was so that I wouldn't be priced out of London and I didn't want to live with my MIL forever.

I am looking at 3 bed flats now (5 years after I bought) so hopefully it would be a cheaper step up. But in most cases still 250k-350k more for more square footage and an extra bedroom except when a smaller 3 bed flat comes up.

I don't think i will live in a house in my area but I kinda expected that when I bought my flat even at 26. Didn't see how it was going to work.

I agree the ladder is dead

I got lucky with timings on a 2 bed and “made” 150 k profit on top of the equity I paid down when I sold 7 years after buying annnd had good pay rises annnnnd met my husband

we looked at 3 bed semis (700-850 range) but realised with stamp duty and cost of moving again if we didn’t want to be stuck there forever we had to “go big” so stretched ourselves and went for the 900k-1.1m bracket which are 4/5 bed semis
we are mortgaged up to the tits long term but monthly it’s managable and only £500 pm more than the 3 bed with 30% more space and off road parking…

It was a solid choice as we would have been stuck.
the house value is only up 5-10% in 6 years, interest is up and now we have had kids and childcare.
we will never move despite good incomes except to downsize.

next bracket is 1.5-1.7m and I don’t know who wants to take on an extra 500 k debt in their 40s for little material benefit

genuine question though- would moving from a 2 bed flat to a 3 bed flat be considered a move up the ladder.

Or moving from a 2 bed terrace to another 2 bed terrace where you can stpp or where there is a loft conversion (making it a 3 bed but a very similar property otherwise).

Or does it need to be flat-house or terrace-semi or is it just based on the numerical value- though tbh even 50k more on a SE based house is arguably a step up.

where i live (z3 london), 1 bed flat and 2 bed flat have probably 50k difference.

I never understood the concept of the 'housing ladder' to begin with... it was a flash in the pan modern invention.

Our parents, grandparents, great-grandparent etc... bought one house for life.

Didn't even matter if they had 10+ people living in a tiny 3 bed (and my great-grandparents did, the 3 girls shared a 4m2 room). That house is still in our family and thought of by most as 'the family home'.

My great-grandparents owned 1 house, my grandparents owned 1 house, my in-laws owned 1 house... they all lived in that first house they bought until they died then passed it to family.

The idea of flipping houses or moving up 'the ladder' only really been a thing since around the millennium (around the time prices shot up) and is probably why we have such a terrible housing issues now.

Prices being pushed up by all the people who watched homes under the hammer etc... and who thinks they can buy a standard house then sell for 20% more than they bought for within a few years with just the odd millennium grey cheap bodge DIY. Of course they 'need' 20% more because they need that extra money to 'move up the ladder'.

DD and her SO have been renting together since the end of the pandemic while saving up to buy a home of their own. They are both in their late 30s and have just had (an unplanned but very welcome) baby who has obviously thrown a spanner in the works. They will need 3/4 bedrooms (they currently have this in their rental) as both WFH a lot of the time so a first time property ( e.g. a 2 bed flat) won't work. Whatever they can afford to buy will end up their 'forever home.' So no property ladder for them 😢

I’m not sure that’s always been the case. I have researched the history of families who lived in our house 100+ years ago, using the census, and certainly plenty of them moved on from here (terrace) to bigger and better homes. One is only about a mile away, a beautiful detached period home. DH and I often walk past it and shake our heads ruefully as there’s no way on God’s earth we could even dream of living somewhere like that in the future.

I think people moved as well. Maybe not working class people who didn’t get much in the way of pay increases, but definitely a lot of people did. My road is good size 1930s semis. Almost everyone seems to have started off with a small terrace nearby then made the move upwards at some point, including a lot of the older residents. They may have lived there for 40+ years but a lot of them moved in when their children were young. It wasn’t their first home.

DH's family has been in London for 100 years.

His grandfather bought a 3 bed semi in the London suburbs in 1955 as a newly engaged garment worker in the east end (who didn't know whether he had a job from one week to the next) with a mortgage from the council. His mortgage was £40 per quarter, he bought it cos his fiancee fell in love with it. They later extended the back. His parents rented slums in the east end and later bought a house.

DH's mum and dad bought a 1 bed flat in zone 3 london when they married in 1989. They quickly outgrew it as they had 3 children in 6 years. They didn't have much choice but to move to a 3 bed terraced house in the same area (ex workers terrace) and they only managed it with help from family as dh's father was unemployed. They raised their 4 kids there and dh's mum still lives there. I lived there for 3 years myself and there were 5 adults and 1 teen at its peak.

Dh and I bought in our 20s, 2 bed flat in zone 3 London. I would like a bigger flat where I can have a nursery and a pet room/study (or even a larger hallway where they can live) but we are struggling with infertility so if we don't have kids, I wouldn't move..

So I think people have been moving and it was perhaps possible to jump to the house first off if house prices were affordable relative to earnings. Hasn't been affordable in London for a long time.

I know this is an older thread, but recent enough to still be relevant.

The housing ladder does still work, where I live at least.
If you want the thread to only be about London / the SE, then I don't have the knowledge, but an awful lot of us don't live in the SE, and buy their first flat, then sell and move to something bigger a few years later, yes.

@blackcherryconserve sorry I know it's none of my business but I don't think 3-4 bedroom for your DD is a must have. Definitely a nice to have but if they only have 1 DC, they could cope in a 2 bed. Not ideal if WFH a lot but plenty of people do it, it's doable, 4 bed shouldn't be the norm for a family of 3 with a small baby really

@NewName24 that's where OP lives though so makes sense that she is mainly interested in hearing from people in a similar situation. Of course we know you can buy a 6 bed detached with lots of land if you move in the middle of nowhere but it isn't what Londoners typically would aspire to, for many reasons.

Like everyone else I agree with this, it has been about 15 years since it was even slightly true. People are moving a lot less as it's so expensive, so much hassle and nothing better to buy that they could afford.

Thank you for your comment and you are right it is none of your business!
I know their needs better than you. Also, for a family of three with parents who will be in their 40s by the time they buy a home I don't think it is unreasonable to aim for 3/4 bedrooms especially if that is their 'forever home' bearing in mind the astronomic costs of moving 'up the ladder.'
The baby won't be a baby for long. They are not looking to buy a mansion FFS just somewhere they can afford to bring up their child and each have space to work from.

@blackcherryconserve but what I am trying to say is that although people are struggling to get on the ladder at all, there is still this concept that a forever home needs to be a 3-4 bed semi or ideally detached house when actually it doesn't have to be the case. A family of 3 can easily live in a spacious 2 bed apartment, people are just not catching up with the idea yet as they are still attached to the dream of living in big houses like they maybe had growing up but times have changed.

Your last point really rings true.

Particularly with interest rates no longer being at rock bottom, that extra £500k for the extra couple of rooms might cost an extra £2.5-3k to service.

Even on a household income of £200k+ a year that’s a huge percentage of your income - and that’s just the extra, not the total mortgage cost.

I would never recommend anyone to buy an apartment however big. The astronomical service charges in many cases IME are as much as some people's mortgage.
DDs family wouldn't be able to afford a detached home under any circumstances but three bed semis is not unattainable and in some areas nor would 4 beds be.
How the hell would you know under what circumstances they grew up in? Are they not allowed to better themselves if at all possible? They are doing this under their own steam at a much later age than perhaps you and your contemporaries. I wouldn't presume to know your situation so please butt out of my family's.

@blackcherryconserve there is no need to be so rude... I was just making a comment as I think what you wrote is a reflection of what many people seem to aspire to just because it'd embedded in their mind that the only ideal place to raise a family is a 3 bed house minimum.
Service charges aren't as expensive as a mortgage, perhaps you don't live in London. Mortgage here for a 2 bed flat for a FTBs is £2K per month at least, service charges are certainly nowhere near that. I think Brits just generally hate flats whereas in the rest of Europe and in the rest of the world it is perfectly normal for families to live in one.

Agreed. There's no way we can afford to move to the next step up unless someone dies or we win the lottery.

Will you just stop questioning me! I live in London in a two bedroom flat. I know exactly what I am speaking about. My kids moved away due to high costs here. As far as flat living goes I grew up in one and am living in one again as that is all I can afford.
British people do not hate flats but we are almost unique in having a leasehold system whereby we never own our home as a result.
We pay ground rent to a freeholder for absolutely nothing in return. Service charges over which we have more or less have no control over are ridiculous sums. If we refuse to pay our homes can be forfeited.
Flats in other parts of the world are not leasehold. More often common hold or share of freehold. If you want to learn more about why leasehold is a huge scandal here I suggest you do some research and stop badgering me. If you think I'm being rude so be it.
MidnightPatrol My apologies for hijacking the thread. That was never my intention, only to agree with your point that 'climbing the property ladder' is no longer an option for most people today.

In the Se buying an equivalent house for the same budget (as opposed to buying a flat in London) would mean £400 per person in commuter fares. I bought in my 20s when dh and I were in the office from 9 to 7 and moving out of London wouldn't have been workable plus if we did have a child we would have had no childcare help if we moved out of London due to dh bring from London.

So that would be a big barrier to saving for the next place. When people are younger their jobs tend to be in the office more as they need the exposure to more senior people but as they grow older they may become more senior with more flexible schedules or become freelance/start their own business which opens up more areas for them to live.

So in a sense it's not as much as a housing ladder as right place for the right time.

A 28 year old PR professional may be in the office 4 days a week so may be happier owning her own flat with her partner rather than moving every year in rental. But at 40, she may be a freelancer or global head of marketing (so mainly talking to people from all over the world so less need to be in the office) so rather than the 450k flat in London, she can opt for the 450k 3 bed house in rural Essex.

But dont think she should wait to buy the house in Essex at 40, provided the flat was a share of freehold or in a residents managed development and not new build, she woild have paid off a big chunk of the mortgage in the 12 years... don't think she should move to Essex 12 years too early either...

DD's job is in London and her SO works for the NHS in the southeast. Her journey time to work is one hour each way but I don't know what that costs her. She is currently on maternity leave so no decisions are being made yet.
As you say buying into a share of freehold if buying a flat is one solution. However, bear in mind that most of them tend to be conversions rather than purpose built flats. With some of the experiences I am hearing about currently I'd agree with you that buying a 3 bed house in Essex is preferable to buying a flat in London but costs of transport need to be factored in.

My 1930s purpose built flat is a leasehold as the previous owner didn't participate in buying the freehold as she was 90. However half the residents did and we are allowed to be directors of the residents management company.

Lots of flats like that in nw london. I calculated cost of transport for both of us and the flat in london is cheaper, I work in office ft everyday 5 years on and dh is hybrid (plus now he cycles to work)..now he only wants to live in a place where he can cycle into work lol. I am 31 and this is still the case for me.

Also sod's law- we have fertility problems so I think buying a 3 bed house pre kids while sacrificing area wouldn't have been good for us!

I think one element of the housing ladder is that it's hard for someone to predict the future so it's better if people buy for their present needs rather than in anticipation of children they may or may not have; jobs or possible careers they don't currently have (lots of previous colleagues bought houses cos they thought their remote jobs would continue). They should reform stamp duty to make it easier for us to move and this would also increase supply.

While housing ladder doesn't exist in the same way anymore, I think there is little alternative for the squeezed middle.

Unless you get significant pay rises there is no guarantee you can afford the 3 bed house even if prices fall cos of mortgage rates or lack of inventory or some other reason I haven't thought of. So you would be in rental which doesn't tend to be stable in the uk.

What is preserved when you buy is that every mortgage payment builds up some equity no matter how small. My flat has barely gone up in value in 5 years but the equity in it has gone from 58k to 150k. Rent for the same flat went up £500 per month in 5 years.it can go to the next property and I suppose if you compromise on area (which you may be able to do when you are older depending on situation), you can still buy a bigger property with a bigger budget than what your initial deposit allowed unless you have been investing while you are renting (vanishingly small percentage of people in the uk- as most millenials in the top income deciles own)..