It’s not your mother’s housing ladder anymore

People fail to understand just how fundamentally the creation of buy-to-let has changed the housing market in a generation.

In the popular metaphor of the ‘housing ladder’, the key ingredient is the first-time buyer getting their foot on the first rung and then building up enough equity to move up to a better property.

Parents mystified by why it seems so difficult for their children to afford property these days need to understand how the market has changed since they bought their first house or flat.

In the period from 1980 to 2002, first-time buyers with a mortgage made up 33 per cent of all transactions in the housing market.

From 2003 to 2016, it was only 24 per cent.

Before 2003, the average number of mortgages issued to first-time buyers was around 486,000 per year.

This ladder looks a bit knackered

After 2003, it is around 285,700 per year.

That means that from 2003 to today around 2.8 million fewer people have got onto the first step of the housing ladder compared to ‘normal’* during the 1980–2002 period.

Everybody on the higher steps who wonders ‘who will buy my house?’ should look down and understand how few people there are on the first step who can afford to buy their house.

Why is 2003 so important?

2003 was the year the buy-to-let mortgage really took off, jumping to 14 per cent of all housing market transactions.

The introduction of buy-to-let meant that aspiring first-time buyers had greater competition from landlords.

Buy-to-let caused a mutation in the ‘housing ladder’ model in the new century.

It meant successful first-time buyers experienced a ‘housing escalator’, whereby the added demand not only boosted their own house price but also gave them a bigger pool of buyers for their property when they chose to move up a step.

However, unsuccessful ‘lost buyers’ simply found a growing number of landlords standing between them and the escalator.

The result is Generation Rent, trudging a travelator that gives them no chance to build up housing equity or save for their retirement.

The result of much fewer people being able to take the next step up the escalator is the escalator grinding to a halt.

Those of us who believe the ‘housing ladder’ is still working like it used to in the late 20th century may be about to have a massive wake-up call.

*Normal in quote marks because ‘normal’ changes. The Right To Buy sell-off that started in 1980/81 obviously created more first-time buyers than ‘normal’. I’ve calculated my 2.8 million ‘lost buyers’ figure by including Right To Buy sales. If you strip Right To Buy sales out you still have 1.9 million ‘lost buyers’.

Like what you read? Give Daniel Farey-Jones a round of applause.

From a quick cheer to a standing ovation, clap to show how much you enjoyed this story.