Lloyds Bank

Second time buyer market still at its toughest for decades despite recent improvement

25 August 2012

Homeowners looking to take their second step on the property ladder are facing the toughest market conditions for over a quarter of a century, according to the latest Lloyds TSB Homemovers Review.

  • Home affordability for second steppers is less favourable than for first-time buyers.
  • Second steppers’ current equity position would account for just 5% of the price of a typical second stepper home. Compared with almost half (44%) in 2005.
  • Homemovers account for the smallest share of homebuyers since 2001.
  • The average homemover deposit in 2012 was £61,536. This is a rise of 70% from the average of £36,280 in 2002.

Housing affordability for second steppers – calculated as the average price of a typical second stepper home less their current equity position as a ratio of average earnings – stood at almost five (4.7) times gross annual average earnings in June 2012; the second highest ratio since records began 25 years ago. This affordability measure has risen significantly over the past decade from 3.2 in 2002 and is well above the long-run average of 3.3. However, it does represent an improvement on June 2011 when the ratio stood at 5.2, reflecting the losses faced by those who bought for the first time at the very top of the market in 2007.

Home affordability for second steppers is also less favourable than for first-time buyers – 4.7 times gross annual average earnings compared with 4.1. This is in contrast to the peak of the housing market in 2007 when second stepper home affordability (at 4.3) was significantly more favourable than for first- time buyers (at 5.5).

The current affordability position for second steppers is similar to much of the 1990s when falling house prices in the first half of the decade and weak house price growth thereafter, adversely affected levels of equity. This made it typically harder for home buyers to move up to the second rung of the housing ladder than it was for first-time buyers to enter the market during most of the decade.

Suren Thiru, housing economist at Lloyds TSB, commented:
"It is clearly very concerning that the challenges facing those attempting to take their second step on the housing ladder are the toughest for more than a generation. This follows the significant decline in house prices over recent years and the subsequent erosion of equity among those who bought for the first time at close to the peak of the market."

“The current problems facing second steppers have serious implications for the wider housing market, creating a bottleneck that significantly limits the number of homes available to first-time buyers as well as stopping many homeowners who need to move, possibly for family reasons, from doing so."

Deterioration in second stepper home affordability due to fall in house prices…
The decline in home affordability for second steppers has been caused by the recent fall in house prices. The average price paid by a first-time buyer has dropped by 16% (-£25,271) since 2008.

…leading to housing equity of only £9,000…
A Lloyds TSB study found that first-time buyers typically plan to stay in their first property for four years. On this basis, many potential second steppers in 2012 would have bought their first home in 2008, close to the peak of the housing market. As a consequence of the fall in house prices over the past four years, potential second steppers in 2012 are estimated to be in a positive equity position of just £9,008 on average.

…equivalent to just 5% of the price of a typical second stepper home
Second steppers’ current equity position of £9,008 would account for just 5.4% of the value of the typical second stepper property in 2012 (£165,565). This compares to a peak in 2005 when second steppers where able to fund almost half (44%) of their next home from the equity built up in their first property.

Historically, homeowners have typically been able to finance almost a quarter (24%) of their move onto the second rung of the housing ladder from the equity built up in their starter home. This is nearly five times second steppers' average equity position in 2012.

Northern England sees biggest decline in affordability for second steppers
The North of England has seen the biggest deterioration in second stepper affordability over the past decade. The affordability ratio for second steppers in the North of England stood at 4.8 times gross annual average earnings in June 2012, nearly a three-fold increase (+3.1 percentage points) on 2002 (1.8). Yorkshire and the Humber recorded the second biggest deterioration (+3.0 percentage points), followed by the South East (+2.8 percentage points).

The South East is the least affordable UK location for second steppers with an affordability ratio of 6.1, followed by London (5.9). The West Midlands (4.0) is the most affordable UK region.

Additional findings

Homemovers, 2012:
The data in the section below refers to 'homemovers' who are 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.

Proportion of homemovers at 11 year low
There were 150,900 homemovers in the first half of 2012; a rise of 9% on the same period in 2011. This is around half the rise in first-time buyers (17%). As a result, homemovers account for the smallest share of homebuyers7 (60%) since 2001. This reflects both the current difficulties faced by homeowners looking to move and the recent ending of the stamp duty holiday which is likely to have boosted the number of first-time buyers.

Homemover house prices rise 41% since 2002
The average house price paid by a homemover has risen by 41% (£60,001) over the past decade from £145,120 in 2002 to £205,121 in 2012. Homemover house prices have fallen by 0.9% over the past year.

70% rise in average homemover deposits over the past decade
The average homemover deposit in 2012 was £61,536. This is a rise of 70% from the average of £36,280 in 2002. Homemovers in the capital put down the largest average deposit – £113,107 – 31% of the property value. In contrast, homemovers in Northern Ireland put down the smallest average deposit (£34,097 or 25%).

Offering a solution
Addressing the challenges faced by those looking to move home, but suffering from a difficulty raising the deposit, Lloyds TSB offers the Lend a Hand Homemover mortgage.

The Lloyds TSB Lend a Hand Homemover product allows borrowers to take out a mortgage with a deposit of just 5%, but can access a rate that is the equivalent of products available for borrowers with a much larger deposit. This is because their funds are backed up with the savings of a helper, such as a parent, grandparent or other family member. At the same time, their helper benefits from a competitive savings rate as a legal charge is taken over the savings to offset the risk. No other major lender offers deals for new customers moving house unless they have a deposit of at least 10%.

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