Climbing the Property Ladder

11 October 2021

If you are a first-time buyer, discussing climbing the property ladder may seem premature, especially if you are struggling to take the first step. However, forward thinking is key in property and once you’ve secured your first home, it is a good idea to think about how and when you’ll climb the property ladder in the future.

So, what is the property ladder?

The property ladder is a metaphorical image of the steps of property ownership in the UK.

Traditionally, the rungs of the property ladder were:

• First-time buyer: one or two bedroom flat
• Second-stepper: small 2-3 bedroom house (terrace or semi)
• Third- stepper: bigger family home, 3-5 bedrooms (semi or detached)
• Down-sizer: smaller home for retirement

What Does Climbing the Property Ladder Mean?

Climbing the property ladder is the process of buying and selling homes over a period of time in order to take the next step. 

1. First-Time Buyer

First-time buyers tend to purchase a small flat as their first home. While living there, they begin paying down their mortgage to build up more equity alongside any capital growth. 

2. Second Steppers

Second-steppers are home owners who currently have their first home (usually a flat) but now want to move to a small house with more rooms and some outside space. They may wish to move in with a partner and start a family in the future.

3. Third Steppers

As a second stepper’s family grows, they may look for their ‘forever home’ – a larger family house that is close to schools, has more outside space and more bedrooms. This tends to be the home a family will stay in either until their children fly the nest or they retire. 

4. The Downsizers

Once your children leave home and retirement age approaches, many third-steppers may choose to downsize to a smaller home. This often comes with the benefit of releasing equity built up in their ‘forever home’ which can boost their pension.

How Do You Get on the Property Ladder?

Purchasing your first home is not only a massive financial commitment, but the process can be extremely daunting. 

UK property prices grew by 5.8% between September 2020 and September 2021, this has resulted in the prospect of buying looking unatonable for many first-time buyers.  According to research, the average age of a first-time buyer in the UK is now 31.

However, if you wish to get on the property ladder sooner, there are some steps you can take:

• Boost your saving skills by cutting back on luxuries, reducing bills, renting with others or moving home for a period of time
• Pay off any outstanding debts and check/improve your credit score if needed
• Consider using a government scheme such as a Help to Buy equity loan, Shared Ownership or the 95% mortgage guarantee
• Boost your income by making use of cashback schemes, selling unwanted things you no longer need or temporarily getting a second job

Moving Up the Property Ladder

Purchasing your first home is a huge step, but once you have taken the leap, it’s time to think about moving up the property ladder. 

Here’s what to consider as you move up the property ladder: 

1. Save more for your first home

Saving more for the deposit of your first home makes it easier to move up the property ladder in the future. 

Putting off your first purchase for longer while you save for a larger deposit means:

• You’ll have more immediate equity in your home
• You will probably secure a more attractive interest rate, meaning your repayments may be lower and you can continue to save money

Most first-time buyers aim to save a deposit of 10% or 5% (if using a government buying scheme). However, by spending time saving a deposit that is 15% or 20%, you could find yourself in a much stronger position when you come to buy your second home.

2. Don’t be blinded by aspiration

Property programmes and images of glamorous homes can contribute to an unrealistic view of what may be achievable for a first-time buyer. However, there is no harm in setting a goal to work hard for to buy your dream home!

3. Be prepared to compromise

It’s highly unlikely you’ll find a property that ticks all the boxes first time round. Being prepare to compromise on location, size and finish is hugely important when stepping on to the first rung of the property ladder. 

4. Don’t be reluctant about a ‘project’

By buying a property in need of refurbishment, you may be able to save money on purchase price, then eventually add more value through doing it up.

Renovations can be daunting, especially if you’re inexperienced, but never rule one out completely as the financial benefits could enable you to climb the ladder faster.

5. Make sacrifices

Moving up the property ladder will require sacrifices – whatever rung you’re on. If you’re purchasing your first home, you may need to sacrifice certain luxuries or work longer hours so you can save the deposit you require. 

6. Experience

By going through the process of buying properties, you will build up crucial experience that you can use later as you continue to climb the ladder. 

Property transactions don’t always run smoothly, so use your experience of difficult times to build resilience as you move forward. You will also build confidence in negotiating and considering costs. 

7. Consider additional costs

Buying as well as selling will involve additional costs, so make sure to factor these into your budget to start with. 

When selling your first property, you’ll need to have it valued by an estate agent. This will then indicate how much equity you have in your home, this equity can then be used as a deposit for your second property, as well as other costs like:

• Estate agent fees
• Stamp duty
• Conveyancing
• Removals
• Fees for your new mortgage

8. Be patient if you are in a chain

A benefit of being a first-time buyer is that you have no buyers beneath you in your chain. This can make the buying process of your first home run more smoothly. However, when you come to sell and move to the next rung on the ladder, you may end up in a longer chain, with more risk of collapse. 

To avoid a long sales chain, consider selling your property before buying your next one – perhaps renting for a few months while you search. 

9. Get financial advice and the correct mortgage

Depending on where you are on the property ladder and your current financial circumstances, you may want to seek independent financial advice. 

Getting the right mortgage for you is always key in any property purchase, but as you move up the ladder, you may have a family to take into consideration.

Running through your financial situation with a financial advisor and mortgage broker will give you a better understanding of your circumstances and help you secure a mortgage that works best for you in the future.

10. Think one step ahead

As a first- time buyer, think about whether the property you’re considering buying will enable you to step on to the second rung in the years to come. Will it grow in value? Will it be in demand?

When selling your second property and moving to a larger family home, think about how it will work for you as your family grows as you get older. Will you have to downsize sooner than planned?