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The Property Ladder

publication date: Sep 22, 2010
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author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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The Property Ladder


At the moment it might seem impossible to climb the property ladder. With few mortgages available for buyers and the requirement of a hefty deposit of up to 25% as well as quite high mortgage rates, buying a home to rise up the property ladder might seem like a dream.

However, ignore much of the information you read in the media. If you own a home already and are thinking of selling up and buying a bigger home to climb the property ladder, now might well be the best time to buy.

Climbing the property ladder may be possible in today’s market if:-

  • Your job is likely to be as secure as it can be.
  • You have at least a 25% deposit via current equity or cash to put into the next property.
  • You intend to stay in the property for at least five years.
  • You have a back-up plan or extra finances if you need to cover the mortgage for a period of time without income eg you become sick and can’t work.
  • You can cope with possibly heading into negative equity for a period of time and can still afford the mortgage. 


So if you are financially secure, trading up to a new property might even save you money in the short term. For example, if property prices are going to drop by 10%, here is what happens when you are buying or selling:

Property sales price prior to fall£150,000 
Property sales price after 10% fall£135,000 
Drop £15,000
   
Property purchase price prior to fall£275,000 
Property purchase price after 10% fall£247,500  
Drop £27,500

This example also saves you even more money as the property purchase of £275,000 would normally attract a stamp duty level of 3% which in this case equals £8,250. In this case, a 10% fall in prices results in the final property price being brought out of the 3% stamp duty, into the 1% stamp duty range.

So by trading up in a falling market, you may lose £15,000 on your current home, but if you can secure the new home for 10% less and move the property out of a 3% stamp duty price bracket, you would actually benefit by just over £18,000:-

Gain£27,500 on the property sales price
 £5,775by reducing the stamp duty to 1%
Total£33,275
Loss£15,000off the price of your current home
Net Gain£18,275 

Of course, this relies on property prices not falling any further, but even if they do, as long as you can keep up the mortgage, over a 20 year period, property prices will typically double, so if you are planning to stay in the property for a while, you should be able to cope with moving up the property ladder in the current market.

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