Property ladder
From Wikipedia, the free encyclopedia
The property ladder is a term widely used in the United Kingdom to describe an individual or family's lifetime progress from cheaper to more expensive housing. According to this metaphor, cheap houses for first-time buyers are at the bottom of the property ladder, and expensive houses are at the top. 'Getting on to the property ladder' is the process of buying one's first house, in the hope of leaving it for progressively better houses as one's salary rises.
In times of inflation, such as the last 30 years of the 20th century in the United Kingdom, salaries rose exponentially in money terms, even though the purchasing power of the salary might not rise; but as the real cost of the fixed, or nearly-fixed, monthly loan repayment was eroded, the borrower was able to afford to take on a bigger loan to buy a more expensive property. Over this period many people, by repeating this process several times, were able to acquire successively more expensive properties at comparatively modest real cost. The process was assisted by the low ancillary costs of house purchase, ease of borrowing, a favourable taxation system, a national culture of owner-occupation and a Government policy of obliging local councils to sell their housing stock to sitting tenants at a discount. The resultant demand led to a trebling of property prices by 2008.
With low wage inflation and the high price of houses in the United Kingdom in the late 1990s and early 2000s, younger people have difficulty in getting onto the property ladder. Normally this should lead to fall in demand and a cooling of prices, but this sector of the market has been sustained by investors buying houses and flats to let. Since this sector acts as a floor supporting the market as a whole, the widely-expected correction or fall did not happen until the spring of 2008.
Without high wage inflation, the cost of a mortgage remains the same over the years. This results in no property ladder as there are no factors to erode the debt.
