Moving up the property ladder indicates you are now on the property ladder and now want to move on to a bigger home or a better home.
This could be the case if you have a growing family or you have increased income.
How to move up the property ladder?
To move up the property ladder you will hopefully want either of these two things to have happened to you.
- You have substantial equity in your current property which can be used as a mortgage deposit when you move up the property ladder.
- House prices have fallen and you were able to sell just before they did.
- You are not in negative equity and hence you can make some profit when you sell your property and use this profit towards your mortgage deposit to move up the property ladder.
- Your income has risen and you can now save more towards a mortgage deposit for when you move up the property ladder and you can now afford a bigger mortgage which means you can buy a much bigger property than your current one.
- Inflation has fallen and your money is now worth more
- You have inherited some money and can now put it towards moving up the property ladder.
If all of the above worked for you then great! You should be able to move up the property ladder with relative ease but this isn’t the case for everyone. Some people may have complex situations such as the help to buy equity loan situation detailed below.
In any case, if you are considering moving up the property ladder then your first stop should be with a mortgage broker to see how much you can afford and if moving up the property ladder is feasible now or in the near future..and if not what you should do to get mortgage ready.
Your mortgage broker will also inform you of all the costs involved so you can begin to put funds away.
Some of the costs involved with moving up the property ladder include:
Moving up the property ladder from a help to buy property
If you got on the property ladder with most of the schemes offered by the help to buy scheme then you may find that moving up the property ladder may be much harder than you could have ever imagined.
This is because the governments help to buy scheme were focussed around incentivising new build property developers to build new houses faster.
This is great but when new builders began building these homes they also began pricing them way above market price because they knew the demand was there.
This, in turn, meant that there were few help to buy mortgage lenders out there willing to lend on a new build property as they were worried about the fact that they would be loaning money on a portion of the property that was essentially worthless.
Take for example you have a new build property that is valued at £200,000 and you have a 10% mortgage deposit and wanted to get a mortgage with a 90% loan to value for £180,000.
The mortgage lender then values the home and realises that it is only actually worth £180,000 and not the £200,000 it is being sold for.
This means that the mortgage lender is only willing to lend you a 90% loan to value on £180,000 and not £200,000 as £180,000 is the true value of the property.
The maximum the mortgage lender can then lend you is £162,000 and not the £180,000 you initially thought.
You will now have to find the remaining £18,000 to add to your existing mortgage deposit of £20,000.
This some people think was were the help to buy scheme was born as its flagship scheme, the help to buy equity loan scheme offered you an equity loan for up to 40% of the property price towards your mortgage deposit.
This means you could cover the difference between the property price and the price the mortgage lender valued the home with your mortgage deposit.
All very great you suppose until it is time to move up the property ladder and realise that you essentially owe more on your property than it is worth.
Whilst you might not have a negative equity mortgage as your mortgage is hopefully not worth more than your property (assuming the value of the new build didn’t fall any lower than the mortgage lenders valuation since you purchased it) as the mortgage lender only agreed to lend on the true value of the property and not the sales price you will likely still owe more on the property when you combine your mortgage and the help to buy equity loan( which by the way has to be repaid when you sell your help to buy property).
As the value of your property is less than what you owe on it as it has depreciated to account for its true market value you won’t be able to recover all you owe on it by selling it at its market value but rather you will have to inflate the price and hope there is a buyer stupid enough to buy it.
This means you are essentially a help to buy prisoner, stuck in your help to buy property, unable to sell and move up the property ladder.
Help with moving up the property ladder
Although some of the Government schemes have their cons you may still be able to use schemes such as the shared ownership scheme to help you in the short term if you want to move to a bigger home but struggling to afford the full home.
some other government home mover schemes which you may b eligible to use to move up the property ladder include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich the local councils provide the Norwich home options scheme.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.