The property ladder: What is it? And does it still exist?
It’s a term you’ve no doubt heard before. But you’ve probably not given it much consideration. These days, the housing ladder doesn’t really exist in the way that it did. In this post, I explain why this is the case. And how you can get on the property ladder (and more so, why you still should), regardless of the current economic climate.
What Was The Property Ladder?
In the 1970s and 1980s, the concept of the “housing ladder” arose as a result of high inflation and interest rates. This economic climate made joining the property market accessible.
With the average rate of inflation (RPI) at 10.1%, average annual earnings growing by 12% each year, and average mortgage interest rates sitting around 12%, it resulted in mass homeownership. Making it common for most young families with a reliable income to join the property ladder.
As the norm, you’d purchase your first home–known as the starter home. And from there, it was possible to upgrade to a more family-friendly home. And then once again to a larger home, all within a period of about 15 years.
Couples were able to do this because, despite relatively low earnings for today’s standards, inflation and wages increased rapidly. Which meant they were able to pay down their mortgage debt in a fairly short amount of time. And although house prices were on the rise, with very little mortgage debt equalling decent equity, they were able to upsize their home.
Does The Property Ladder Still Exist?
So does it still exist? The short answer is no. However, the more accurate answer is that in the current day, the concept of the housing ladder simply doesn’t exist in the same way that it did in previous generations.
These days, as a result of fluctuating interest rates and inflation rates, the average mortgage repayment is more than 16% of your gross yearly income. That’s almost double the ratio it was during the era of the property ladder. Which means even with 20 years of equity and mortgage repayments, the dream of upsizing the family home can be lofty.
Of course, there are still buyers snapping up the larger and more expensive homes. But these purchases are often driven more by inherited wealth, as opposed to accumulated equity and many remain out of reach for those who are not lucky enough to inherit a sizeable sum from the earlier generations of homeowners.
So if this is the case, what does it mean for you?
Firstly, it’s not all doom and gloom. Despite today’s current economic climate, it’s certainly still possible to join the property laddy. And the possibility of upsizing your home in years to come is not out of the question. At the crux of it, it comes down to the need to make informed decisions and clever moves. With that said, owning property does give you many worthwhile advantages. Here’s three such benefits.
3 Reasons Why You Should Still Get On The Property Ladder (even though it might take longer to upgrade than it did in the era of the ’70s)
1. Owning property gives you equity and capital gains.
2. An investment property is considered a good alternative to pensions.
3. House prices are a sure thing. Whilst it’s true in the current day it could take you longer to make your next upgrade, house prices continue to increase if you buy right.
So how do you make sure you get in the game and play it well?
Follow these three key principles:
1. Choose a solid investment: think location, think build quality, think demand, think infrastructure and resources.
2. Buy savvy: purchase well, and negotiate if possible.
3. Simply put, do what you can to get on the ladder. The earlier you start, the earlier you’ll pay it off.