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The Property Ladder

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

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%
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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