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February 21, 2014 6:03 pm
Rising property prices and lower-rate mortgages are improving prospects for homeowners looking to move up the property ladder, but many “second-steppers” still face major affordability problems.
New research from Lloyds Bank shows 337,500 homeowners moved up the ladder in 2013, as increasing house prices boosted equity in their existing home and gave them a larger deposit on their next property.
Second-steppers who bought their first home in 2008, after the peak of the market, and are now looking to move to their second home, have built up average equity of £41,286, it added.
With the typical second-stepper home worth £174,240, this amount is equivalent to a 24 per cent deposit. The equivalent equity position last year was 13 per cent, and only 1 per cent in 2012, according to the Lloyd’s review in August.
“As house prices have increased over the past 12 months, we’re seeing more people look to take the next step on the housing ladder,” said Marc Page, mortgages director at Lloyds Bank.
House prices rose by 7.5 per cent in 2013 and continue to climb, up 7.3 per cent in the three months to January compared with the year before, according to Halifax. The lack of new housing supply is one factor; the number of homeowners opting to put their property on the market for sale increased only marginally at the end of last year, and fell some way short of the number of new buyer enquiries, according to the Royal Institution of Chartered Surveyors.
Cheap credit is another; there is far more choice of products for lower-deposit homebuyers than a year ago. This helps push prices higher, but also gives homeowners more options.
“Even if homeowners have not built up a much bigger deposit over the years, there is a much better choice of mortgage products available for borrowers with small deposits,” said David Hollingworth, of mortgage broker London & Country.
“Help to Buy is available to homebuyers, and not just first-time buyers. It offers an option of up to 95 per cent of a property of as much as £600k.”
Explore the latest data on house prices in England and Wales to see which areas of the country have seen the biggest rises
There are now 172 mortgages in the 95 per cent loan-to-value space, compared with 84 a year ago, according to data firm Moneyfacts.
An increase in the supply of first-time buyers should help second-steppers sell their property.
A report by Rightmove last March highlighted that the supply of first-time buyers was at its lowest level for more than two years, hindering second steppers. This trend has sharply reversed; figures from the Council of Mortgage Lenders highlight that the number of first-time buyers increased in December 2013 by 37 per cent year-on-year.
The figures also showed home mover lending picked up, with a 13 per cent rise in the volume of lending for house purchases in the fourth quarter of last year, compared with the same period in 2012.
However, some second steppers could still be facing affordability issues, especially if they bought at the height of the market in 2007.
“As prices rise, bridging the gap between purchase price and deposit will come down to the amount that they can afford to borrow,” said Mr Hollingworth.
Housing affordability, calculated as the average price of a typical second-stepper home less the current equity position and expressed as a multiple of average earnings, has decreased markedly over the past decade.
Lloyds said this figure stood at 4.4 times gross annual average earnings in June 2013, compared with 2.9 in 2003, meaning that second-stepper housing was much more affordable a decade ago.
Life could prove particularly tough for those second steppers who own a flat and want to move to a larger house. Figures from the Office for National Statistics show the average house price in the UK has risen to £250,000, up 5.5 per cent from the year before.
There is also a significant divide in second-stepper affordability between the north and south of England, in both absolute and relative terms. The Lloyds report shows the East Midlands, East Anglia and the North are the most affordable regions for those in their first home looking to take their next step on the property ladder.
London, the South West and South East are the least affordable.
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