Property ladder

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 (other than slowly paying down the principal over time).

The term property ladder is also partly responsible for the artificial house price bubble in the UK as people generally are under the illusion that buying property was a safe business that does not require any deeper thoughts about whether it is a wise idea from an economical point of view. In fact, to many people in the UK the term of the property ladder could be used to describe a way "downwards". More and more people need to sell their property for less than they have initially bought it for and buy a smaller property. To them, the ladder leads to more and more debts while the size and value of the property is declining.

Some media such as the BBC have now internally banned the term "property ladder".

ee also

*Real estate bubble
*British property bubble
*United States housing bubble