£60,000 gap to jump up the housing ladder to second home
Growing house prices mean there is an ever widening gap for those making the move to the second step on the housing ladder, according to the fourth annual Second Steppers Report from Lloyds Bank. Yet despite this, many have increased confidence in the housing market and as a result, more confidence in being able to make the jump to the next step.
Second Steppers were yesterday's first time buyers and they are today's first time sellers.
Second Steppers are the link between first time buyers and the rest of the housing ladder. They are living in the homes that the first time buyers need to buy to keep the market moving. Without movement from Second Steppers, movement on the ladder comes to a standstill on the second rung.
Despite increasing house prices boosting equity levels for Second Steppers, the findings show people living in their first home have to find an extra £58,400 to plug the gap between the sale price of their current property and the cost of the house they would ideally move to. This figure is over double the amount of the average first time buyer deposit of £25,848, meaning it is far more expensive to move up the ladder than to get on it in the first place.
Year on year, this figure has significantly increased. Nationally, the figure of £58,400 has risen by £14,900 since 2013 and £17,900 in 2012, when the figure was £40,500. However, across the country, there are significant regional variations in the perceived size of this gap. In the West Midlands, people will need to find just £21,000 extra to make the step to their desired second home. At the other end of the scale, people in East Anglia say they need £80,800 to make the jump.
Second Steppers show confidence in first time buyer demand as barriers to moving reduce.
However, despite the growing financial gap between first and second properties, confidence in the market is improving. Just a quarter of Second Steppers see economic uncertainty as a key challenge, reducing by 10 percentage points in a year. Unsurprisingly, the number seeing negative equity as a challenge also reduced by 11 percentage points to just 14% of respondents.
The Help to Buy Mortgage Guarantee scheme has had an impact on the mortgage market, with HM Treasury data showing that 79% of purchases with a mortgage guarantee were completed by first time buyers. This has contributed to Second Steppers being more confident that there is the demand coming through allowing them to sell. Just under a third (29%) see a lack of first time buyers as a key challenge, significantly reducing by 12 percentage points since 2013.
Fees and charges associated with moving home are still seen as the biggest barrier to moving home, for nearly half of Second Steppers (46%). Although confidence is improving, 44% believe that potential interest rate rises are one of the key challenges facing first time sellers, rising by 12 percentage points in a year.
Four in ten think rising house prices have had a positive impact.
In the past 12 months, house prices have risen by 9.6%, giving people more equity in their properties when they come to sell. Nationally, just over four in ten (43%) Second Steppers say that rising house prices have had a positive impact on their situation and ability to move up the ladder. Regionally, those in Central London (60%), East Anglia (53%) and the South East (47%) feel more strongly that rising house prices have had positive impact. Only 24% of those in the North East feel they have been positively impacted, with 38% in the West Midlands.
Across the UK, Second Steppers estimate that their current properties have seen a 20% increase in value since they purchased their house, which is on average just over four years ago. In this time, Second Steppers estimate their property values have risen from £186,800 to £223,600 on average. In addition, three quarters (74%) predict further house price inflation in the next 12 months, with those in the North West (86%) and West Midlands (83%) most confident about house price rises.
The number of people concerned about the size of deposit they required to move also fell in the last year, from half (50%) of Second Steppers in 2013, to 37% in 2014. This again suggests that increased levels of equity are allowing people to put more towards their next deposit. The introduction of the Help to Buy Mortgage Guarantee scheme has also made deposit requirements easier, with more options in the market for people to move with smaller deposits.
In most regions, Second Steppers are looking to pay more than the national average price for their next property. Across the country, Second Steppers expect to pay £282,000 for a property, which is a £10,000 premium over and above the national average house price of £272,000.
Twice as many Second Steppers think it will be easier to sell now than in 2013.
For first time sellers, 40% believe it will be easier to sell their property now than last year. This is significantly up on 2013, when only one in five (22%) thought it would be easier and 2012, when only 12% had this confidence.
There has also been a decline in the number of Second Steppers who wanted to move up the property ladder but couldn’t do so. Nationally, just over half (54%) wanted to move up the property ladder in the past 12 months but haven’t yet made the move. In 2013 this figure was 7% higher at 61%. Those in the Central London (67%) and the North West (66%) have found it most difficult to move, while those in East Anglia are least likely to have been prevented from moving up (42%).
Marc Page, Mortgages Director at Lloyds Bank, said: "The jump to the next step is growing quickly for Second Steppers, with the gap to the second home now being almost £60,000 nationally.
“However, as house prices are rising and barriers to the next step are reducing, confidence about selling the first home and being able to move up is increasing. For most regions of the country this is helping people make that jump across the gap to the next rung on the ladder.”