Buyers jump a rung on the housing ladder

Homeowners looking to trade up the property ladder can now do so at a much lower cost, as the recent price falls have knocked more off the value of larger houses than those further down the chain.

Estate agents say that greater savings are available on bigger, more expensive properties, making it easier for owners of small flats, for instance, to move somewhere with an extra bedroom or a garden.

“We now have the reverse scenario of where we were two years ago, as anybody moving up the ladder has a narrower gap between properties,” says James Hyman, sales partner at Cluttons, the estate agent.

Phil Tennant at Hamptons International, the estate agent, says the opportunity to acquire a bigger property more cheaply is the “number one reason to sell at the moment”. “If a £500,000 flat has come down by 30 per cent, then that is less of a drop in real terms than that on a £1m house,” he says.

On average, properties have lost 20-30 per cent of their value since the peak in 2007. But some areas and property types have fallen more sharply than others.

“When prices were at their peak, all areas of the market were moving up at the same pace,” says Hyman. “But in a falling market, certain areas, streets or buildings hold their own better than others.”

Some of the biggest falls have occurred at the lower end of the market as this is more sensitive to the availability of mortgage finance.

People looking to make the jump from a one-bedroom to a two-bedroom home now have to find an extra £31,000, while a year ago they would have needed £41,500, according to Propertyfinder.com, the property search website. This is because the average price of a two-bedroom property has fallen 12 per cent in the past year to £160,600, while the value of a typical one-bedroom home has fallen 8 per cent to £129,874.

“Young families at the bottom end of the ladder will now find it easier in cash terms to trade up than they have for quite some time,” says Nicholas Leeming, director at Propertyfinder.

However, the trade up from a three-bedroom to a four-bedroom home has remained more expensive.

“The average price of a four-bedroom home has fallen from £390,343 to £370,276 – a drop of over £20,000,” says Leeming. “But because the prices of three-bed homes are falling faster, the premium to move to a four-bed has increased from £141,733 in 2007 to £151,235 at the end of 2008.”

Estate agents believe homeowners are increasingly willing to take a hit on the sale price of their own property as they are able to secure greater discounts further up the chain. Some people are even willing to sell their property for less than they bought it for two years ago, as the loss is irrelevant if the saving on their new purchase is bigger. “For some people, the properties they could not afford two years ago are now looking affordable, even if they sell their existing home at a loss,” says Hyman.

The price falls are enabling some buyers to make bigger jumps up the property ladder than they would traditionally have done.

Winkworth, the chain of estate agents, cites an example of a client who sold a one-bedroom flat just before Christmas and bought a three-bedroom freehold house. “Historically, the next rung up the property ladder after a one-bedroom flat would be a two-bedroom garden flat – but this is now changing as the gap narrows,” says Simon Waller, sales manager of Winkworth Shepherds Bush and Acton.

Also, buyers looking to move into a new area could boost their savings. For example, areas of London that rose very sharply, such as Clapham, Battersea and Wandsworth, have fallen off considerably. So anyone moving from more central London areas could snap up a larger property for less additional cash.

Homeowners considering a move up the ladder are advised to find the property they want to buy, and see what discount they can achieve, before putting their own house on the market.