Lloyds TSB has reported that little has improved in the past year for those first-time sellers looking to take the second step on the housing ladder.
Almost two thirds of second steppers (61%) wanted to move up the ladder in 2012 but were unable to as they face an increasing number of challenges. Additionally, more than a fifth (22%) of respondents believe it is actually harder to move up the ladder than it was to get on it in the first place, whilst almost half (46%) of second steppers believe it is equally difficult to move up the ladder, than it was taking the first step onto it.
Second steppers are currently looking to stay longer in the first home, a sign that market conditions are changing their expectations. In 2010, they expected to spend four years in their first home, whereas now they are more likely to plan to stay for five years. On average, second steppers have already had their home on the market for seven months, whilst one in eight (12%) have also previously marketed their property.
Over half (53%) are looking to move as their current property is too small for their needs; 24% are expecting to start a family and need more room; 44% plan to move to a new area, whilst 12% are relocating for work.
Almost two thirds (65%) of second steppers believe that the level of deposit required is the main challenge for them being able to arrange a mortgage, and as a result is a key reason they have not been able to move up the housing ladder so far.
In particular, one in six (16%) say they don’t have any money saved to put towards a deposit; around a third (28%) don’t have enough of a deposit saved at present; whilst one in 10 (11%) need more of a deposit than originally expected.
Around two in five second steppers have lost some (27%) or all (12%) of the deposit they paid on their first property, due to declining house prices since they purchased their first home. The average house price paid by a first-time buyer has reduced by £20,095 since the typical second stepper in 2012 bought their first home in 2007[ii].
The average deposit for a typical second stepper in 2012[iii] was £58,836 almost double the average deposit required in 2002[iv] (£31,189). Meanwhile, the research indicates that second steppers have on average just over £40,000 of equity in their current property, with almost a third (29%) having less than £20,000, leaving a considerable equity shortfall. Almost three fifths (58%) expected to have more equity in their property by now.
Second steppers are doing what they can to make the move up the ladder as soon as possible; with over two thirds (69%) saying they are saving to fund the move. Within this, 37% continued to save after buying their first home, whilst 32% have started saving again specifically to fund their move. Separately, over a third (35%) are overpaying on their mortgage. Savings are set to play a key part in funding the deposit needed to move with three fifths of second steppers (59%) expecting to use savings to help raise the deposit for their next home.
Second stepper affordability worse than for first-time buyers
Almost two fifths (38%) of second steppers blame the lack of affordable housing available as a key reason they have been unable to move up the ladder, whilst 15% are waiting for property prices to come down and be more affordable before making the move.
In fact, home affordability for first time sellers is lower now than a decade earlier, although it has improved marginally in the past year. The Lloyds TSB housing affordability measure – calculated as the average price of a typical second stepper home, less their current equity position as a ratio of average earnings – stood at 5.2 times gross annual average earnings in November 2012[v]. The ratio is almost twice the figure recorded a decade earlier (2.7) and highlights that affordability for second steppers is also now less favourable than for first time buyers (4.3)[vi].
Additionally, the costs associated with moving are creating another barrier, with a third of second steppers (32%) agreeing that stamp duty it is too high, whilst a fifth (20%) are concerned about the overall cost of moving.
Signs of hope start to spring
Almost a third (31%) of second steppers believe the housing market will improve this year, whilst over one in five (22%) think it will be easier to sell their property this year.
Around half (49%) of all respondents also believe the mortgage market has improved over the past year, with a fifth (20%) of respondents specifically pointing to better mortgage deals on the market for second steppers, and a similar amount (17%) believe more mortgages are available. As a result, 46% think this will help them make the move in the future.
However, the majority of first-time sellers agree that more help is needed. Almost a quarter (23%) think the new Government schemes, for example NewBuy and Funding for Lending, will have an impact on them and help them to move up the property ladder, however, over half (57%) do not feel they will have an impact on this group of home movers. As a result, almost three quarters (73%) want more support from the Government and 86% would like their mortgage lender do more.
Stephen Noakes, Mortgage Director, Lloyds TSB
“To achieve a sustainable housing market we need to see movement throughout the market. If second steppers get stuck on the first rung, movement at the bottom half of the ladder comes to a standstill, and this bottleneck will not only restrict the supply of starter properties but will have a knock on effect across the whole of the housing market.”