If you’re a first-time buyer, talk of climbing the property ladder might seem somewhat premature if you’re struggling to take that first step.
But planning for the future is key in property and once you’ve secured your first home, you should be starting to think about when and how you’ll climb the UK property ladder in the years that follow.
In this guide, you’ll find some great tips to help you get on to the property ladder and everything you’ll need to consider when you start to climb it…
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 it mean to climb the property ladder?
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 buyers
Traditionally, a first-time buyer would purchase a small flat as their first home, living there for a few years while paying down their mortgage to build up more equity alongside any capital growth.
2. Second steppers
Second-steppers are those who have purchased their first home, but now want to move on to a small house, with some outside space and more bedrooms – perhaps because they plan 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 to move on to what may be dubbed their forever ‘home’ – a larger family house, close to good schools and with three, four or five bedrooms and more outside space.
This is often the home they stay in either until the children have flown the nest, or retirement is approaching.
4. The downsizers
Once the children have left and retirement is approaching, many third-steppers choose to downsize to a smaller property.
This often has the benefit of releasing any equity built up in their ‘forever’ home which can boost their pension pot.
How do you get on the property ladder?
Buying your first home is not only a huge financial commitment, but the process of doing so can be extremely daunting.
Property prices in the UK grew by 5.8% between September 2020 and September 2021, meaning the prospect of buying may feel out of reach for many first timers.
Indeed, the average age of a first-time buyer in the UK is now 31, according to research.
However, there are some steps you can take to get on the property ladder sooner:
- Boost your saving regime by cutting back on luxuries, reducing your bills, living at home for a period of time or moving into a rental with other people
- Pay off your debts and check / improve your credit score if needed
- Consider using a government scheme like a Help to Buy equity loan, Shared Ownership or the 95% mortgage guarantee
- Boost your income by making use of cashback schemes, selling things you no longer need or getting a temporary second job
How to move up the property ladder
Purchasing your first home is a huge step, but once you’ve taken that leap, it’s time to turn your attention to moving up the property ladder.
Here’s what you’ll need to consider as you progress up the property ladder:
1. Save more for your first home
The more money you can save towards the deposit on your first home, the easier it can be to move up the property ladder in the future.
By putting off your first purchase for longer and saving a larger deposit, you’ll:
- Have more immediate equity in your home
- Probably secure a more attractive mortgage interest rate, meaning your repayments may be lower and you can continue to save
If you’re able to stay at your parents’ family home while you save, you’ll also save money on rent which can go towards your deposit.
Most first-time buyers aim to save a deposit of 10%, or 5% if using a government buying scheme.
But by spending longer saving and getting a 15% or even 20% deposit in place, 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 on television and images of glamorous homes on social media can contribute to an unrealistic view of what’s achievable as a first-time buyer.
Of course, there’s nothing wrong with setting a goal and working hard to buy the home of your dreams.
But it’s also important to remain realistic and view your first home as a steppingstone towards climbing the property ladder in the future.
3. Always be prepared to compromise
It’s highly unlikely you’ll be able to buy the perfect home at your first attempt.
Being prepared to compromise on location, size or finish is hugely important when stepping on to the first rung of the property ladder.
Searching in areas you may not have previously considered could see your budget stretch further – putting you in a much better position in years to come.
4. Don’t be scared by a ‘project’
Either your first home, or the one you purchase as a second stepper, are the ideal rungs of the property ladder to take on a renovation project.
By buying a property in need of a refurbishment, you may be able to save money on the purchase price, before adding more value through the work you complete.
This could mean you can sell for more and have more capital to take the next step on the ladder.
Renovations can be daunting, particularly if you’re inexperienced, but never rule one out completely as the financial benefits could enable you to climb the ladder faster.
5. Be prepared to make sacrifices
Moving up the property ladder will always require a degree of sacrifice – whatever rung you’re on.
If you’re buying your first home, you may have to sacrifice certain luxuries or work longer hours so you can save the deposit you need.
And if you’re renovating a second stepper home, for example, you might find yourself doing a lot of the work in the evenings.
But by making sacrifices at those early steps, you may find yourself in a much healthier position when you come to purchase your ‘forever’ home in the future.
6. Use your experience
By going through the process of buying properties, you’ll be building up crucial experience that you can call upon as you climb the ladder.
Property transactions don’t always run smoothly, so use your experiences of the difficult times to build resilience as you move forward.
You’ll also become more confident with negotiating and considering costs because of that experience.
7. Consider additional costs
When buying your first home, you’ll have nothing to sell.
So, your first experience of the selling process will probably come when you sell it to move on to the second rung of the ladder.
Selling as well as buying means some additional costs, so be sure to factor these into your budget at the start.
When selling your first property, you’ll need to have it valued by an estate agent.
This will then indicate to you how much equity you have in your home to use as a deposit for your second property, as well as other costs like:
- Estate agent selling fees
- Stamp duty
- Conveyancing costs
- Survey fee
- Fees for your new mortgage
8. Be patient if you’re in a chain
A major benefit of being a first-time buyer is that you have no buyers beneath you in your chain.
That can make the process of buying your first home run more smoothly.
However, when you come to sell and move to the next rung on the ladder, you could end up in a longer chain, with more risk of collapse.
To avoid a long sales chain, you could consider selling your property before buying your next one – perhaps renting for a few months while you search.
If you do end up as part of a long chain, be patient but proactive, as your sale and purchase may take longer to complete than you’ll be used to.
9. Get financial advice and the right mortgage
Depending on your financial circumstances and which step of the property ladder you’re looking to move on to, you may wish 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 consider.
By running through your financial situation with a financial advisor and mortgage broker, you’ll be able to better understand your circumstances and secure a mortgage that works for you into the future.
10. Always think one step ahead
Like a snooker player, you should always be thinking one step ahead when moving up the property ladder.
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 from buyers?
When selling your second property and moving into a larger family home, think about how it will work for you as your family grows and as you get older.
Will you have to downsize sooner than you’d like, or will your family home still work for you when you retire?
When should you move up the property ladder?
There are a number of signs that it could be time to start moving up the property ladder, including:
1. A big rise in property prices
If your property has grown in value considerably, it could be the right time to sell and move up the ladder.
Of course, any rise in prices may be reflected in your next purchase, too, but taking advantage of market buoyancy can mean you’re able to climb the ladder faster and reach your ultimate goal of a large family home.
2. You’re outgrowing your current home
Perhaps you purchased your first home when you were single, but a partner has moved in.
Or you may be second steppers thinking of starting a family, but your home simply doesn’t have enough room.
If you feel like you’re very quickly going to outgrow your current home, it may be time to look at moving on to the next rung of the ladder.
3. Your circumstances have changed and you need to move to a new area
You may have had children who are due to start school and want to move to an area with better schools.
Or your work situation may have changed, meaning you need to move closer to your employer or nearer to better transport links.
You may simply have outgrown your area as you’ve gotten older – after all, living in a city centre might be fantastic in your 20s or early 30s, but not so great as you get older.
Should you get on the property ladder as soon as possible?
Getting on the property ladder while you’re younger can put you in a more secure financial position later in life.
However, renting provides flexibility and the opportunity to move around more freely as you build a career.
Essentially, the right time to get on to the property ladder will come down to your personal and financial circumstances.