The times they are a-changin’: Getting on the property ladder

Back then…

The country had pulled itself up from the ravages of the Second World War and the impact of rationing, some of which wasn't lifted until the mid-fifties.

There was still a real sense of community that abounded, with neighbours able to name everyone in their street - and possibly beyond. Usually, these communities had sprung up around industry, such as the mining, fishing, textile, pottery and steel industries.

Families generally lived together and took over the family home or moved (still locally) to be with a spouse.

But, when the sixties arrived, there was an increased sense of freedom (and even wanderlust), which meant the younger generation were keen to move on - therefore, they weren't likely to follow in the professions of their parents, and often they moved to different parts of the country to achieve their goals.

Here. And now…

While looking back on those halcyon days might be remembered with an element of rose-tintedness, there are several aspects of the modern world that can be acknowledged as important developments.

Communication technological advances have resulted in the distances between people being rather irrelevant in terms of keeping in touch. So, children flying the nest is less of an issue if they relocate several miles away.

However, the increased disposable income over the decades created demand in the economy, which then required more employment in the new industries that sprang up. And that meant increased demand for property in the businesses' vicinity for those who worked there.

The practical upshot of this social migration was - and remains - increased pressure on the housing market.

In turn, the chief result is that it is increasingly difficult to gain a foothold on the property ladder. As an example, buying a house today will cost five times morethan it did just thirty years ago.

House prices

House prices are surprisingly volatile in the face of economic uncertainty - although recently the effects of a number of factors (the fallout from the pandemic and the resultant lockdowns, the governmental management of the budget and the taxes propping that up, pressure from the increased cost of living generated by reliance on Russian gas supplies and that country's invasion of Ukraine impacting food prices, plus a number of other influences) have not yet seriously impacted the average house price. 

This average house price is less than a year ago but not enough to produce a house market crash right now.

However, there are four points to be aware of that affect the putative homeowner before stepping on the first rung of that feted property ladder: inflation rate, mortgage rates, recession, and comparison with renting.

1. Inflation rate

The inflation rate is an important reflector of the state of the economy, and shows how fast prices are rising across the country (based on a selected basket of goods and services).

The current price inflation rate is 7.9% in the UK, which is much higher than the target rate set by the Bank of England, which is presently 2%, which means the Bank and the Chancellor of the Exchequer have to make hard financial decisions to bring that high figure down.

One of those instruments is the ability to raise the base rate.

2. Interest rates

The purpose of raising the base rate is to try to cool the rate of inflation. At the time of writing, the Bank of England has increased it for the fourteenth successive month to 5.25%.

While the tactic will (eventually) have an impact on inflation, bringing it back down to more manageable levels, raising the base rate is rarely good news for those with current mortgages or those about to take a loan out to buy their first home.

3. Mortgage rates

The base rate influences what mortgage lenders offer with their rates for home loans. As the base rate goes up (depending on what type of mortgage you have taken out, which needs research across all lenders), so the lenders increase the interest rates or change the availability of their mortgage products.

With the constraints on the pocket already created by inflation and the cost of fuel all enveloped in the cost-of-living crisis, it can put some homes out of reach for those ladder-steppers.

4. Renting sector

Because of legislation, increases in costs, and loan rate increases, landlords are leaving the rental market. While this doesn't seem a significant problem on the face of it, the result is that there is diminishing rental stock.

The impact of this is an increase in demand for the properties that are available, which pushes up the cost of rental. Because of this increase in the expense of renting against taking out a mortgage, more renters are leaving that market and tentatively looking to buy their first property.

As with any such economic change, the increase in demand for property to buy is reflected in a rise in the average property price. And that means a ripple effect down to all other potential housebuyers.

The optimistic view

However, the positive view of house prices coming down is that there will be some bargains to be had. Current homeowners might be open to further negotiation, too, as the homebuying process grinds into becoming a buyers' market.

At the time of writing, too, some of the leading lenders have reduced their mortgage rates with predictions of a mortgage price war. If this transpires, this can only be good news for the first-time buyer, particularly if financial resources are constrained.

Counting the pennies, though, becomes an almost full-time task for those dipping their toes into the pool of buying a home for the first time. 

As well as the statutory costs of embarking on such an ambitious plan, there are the sundry other costs to underline the validity of the decision, such as removals, ordering a survey, appointing your conveyancing solicitor, fixing any problems, decorating and furnishing, and so on and on.

So you'll really want to make sure you get the best value for the lowest price.