Now harder to move up the housing ladder than to get on it

Home affordability for second steppers – those people still living in their first home but looking to take their next step up the property ladder - is at its least favourable level for over a quarter of a century, according to the new Lloyds TSB Homemovers Review.

The Lloyds TSB second stepper 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 October 2011; the highest ratio since records began in 1987. This ratio has nearly doubled over the past decade from 3.0 in 2001 and is significantly above the long-run average of 3.3.

Decline in second stepper affordability driven by falling house prices…

The deterioration in affordability for second steppers over recent years has been driven by the decline in their level of equity as a consequence of the drop in house prices since 2007. The average price paid by a first-time buyer (FTB) has fallen by 23% since the peak of the market in 2007.

…leading to a £10,000 equity shortfall

Lloyds TSB research found that first-time buyers intend to stay in their first home for an average of four years. On this basis, many potential second steppers in 2011 would have bought their first home at the peak of the market on 2007. These homeowners are, on average, estimated to be in a negative equity position of almost £10,000 (£9,902).

Second stepper affordability now less favourable than for FTBs

As a result of the decline in house prices since 2007, the home affordability ratio for second steppers (5.2) is now less favourable than for those entering the housing market for the first time (4.1). This is in marked contrast to the situation at the peak of the housing market in 2007 when home affordability for second steppers (4.1) was much more favourable than for FTBs (5.7).

South East is the least affordable area for second steppers

The South East is the least affordable UK region for second steppers with an affordability ratio of 7.1, followed by London (6.8). The West Midlands (4.1) and East Midlands (4.2) are the most affordable locations for those in their first home looking to take their next step on the property ladder.

Suren Thiru, housing economist at Lloyds TSB, commented: "The deterioration in home affordability over the past few years among those looking to take their second step on the property ladder has been significant. This reflects the impact of the decline in house prices since 2007 on the amount of equity those who bought for the first time at the peak of the market have in their homes. As a result, many are faced with a very tough challenge to make their next move on the property ladder.

“The issue of second stepper affordability is a key one in trying get the housing market moving again with the current difficulties in this segment of the market restricting the supply of starter properties for first time buyers as well as preventing many of those who need to move from doing so."

Homemovers, 2011:

The data in the section below refers to 'homemovers' which is defined as all those already in the housing market (i.e. they currently own a home). Second Steppers are a subset of homemovers and refer only to those looking to get on the second rung of the housing ladder.

Numbers 

Lloyds TSB estimates that there will be around 312,000 homemovers in 2011; the lowest annual total since 1974 and a fall of 9% on 2010. The estimated fall in the number of home movers was also faster than the expected drop in the number of FTBs (-7%).

House Prices 

The average house price paid by a homemover has fallen by 2.5% (£5,254) over the past year from £210,464 to £205,211. 

Homemover property prices have risen by £137 a week over the past decade from £133,746 in 2001 to £205,211; an increase of 53% (£71,464).

Deposits and Advances 

The average deposit in 2011 was £70,209. This was nearly double the average of £49,321 in 2001. 

Home movers in the capital put down the largest average deposit - £125,345 - 35% of the property value. In contrast, Homemovers in the North put down the smallest average deposit (£44,265 or 31%). 

The average mortgage advance is £135,001; down 0.5% on a year ago but up by 60% (£50,576) compared with a decade ago.

Age 

The average age of a homemover is 40 years old. Homemovers in London are, on average, the youngest at 38 year olds. Regionally, the average age of a homemover is highest in the South West, at 42. (source: CML)

Mortgage affordability rises to 14 year high 

Mortgage affordability for those looking to move is at its highest for fourteen years. Typical mortgage payments for a homemover (i.e. those already in the housing market) – stood at 30% in the third quarter of 2011: the lowest level since 1997 and down by almost half from a peak of 52% of average disposable earnings in 2007 Quarter 3. This improvement has been due to the fall in mortgage rates and lower house prices since 2007.