Bank of Scotland

Second steppers continue to struggle as housing market remains flat

12 January 2013

The home mover market in Scotland has remained relatively flat over the past year. However, despite seeing some slight improvements, second steppers are still bearing the brunt of the stagnant housing market, according to the Bank of Scotland's latest Home Movers Review.

  • Bank of Scotland estimates that there were around 27,000 home movers in 2012, largely unchanged from 2011
  • A typical second stepper's current equity position accounts for just 2% of the price of an average second stepper home, having been as high as 41% in 2006
  • The average home mover deposit in 2012 was £47,311 – a four and a half fold increase from £10,516 in 2002.

The Bank of Scotland second stepper housing affordability measure for Scotland – calculated as the average price of a typical second stepper home less their current equity position as a ratio of average earnings – stood at 4.2 times gross annual average earnings in November 2012. This ratio has risen significantly over the past decade from 2.7 in 2002 and is well above the long-run average of 3.2.

However, second stepper affordability has improved slightly on the previous year – the Bank of Scotland measure reached its highest level (4.6) in a quarter of a century in 2011. As more time passes since the peak of the market and the subsequent fall in house prices in 2007-8, a higher proportion of potential second steppers will have bought their first property when house prices had already fallen from their peak. Despite this, second steppers in aggregate still face considerable challenges.

Low equity levels creating a barrier for second steppers

The typical potential second stepper in 2012 would have bought their first home in 2008. Such a homeowner is, on average, estimated to have an equity level of just £2,844 - equivalent to 2% of the average price for a semi-detached house (£133,711). This low level of equity covers just 40% of the average cost of moving in Scotland, estimated at close to £7,000. Therefore, many of those looking to move up the ladder have no equity left in their home to help fund a deposit on their next home. In addition, there are also many potential second steppers who bought at the peak of the market in 2007. Many of these homeowners are likely to be in an even worse financial position, often with negative equity. It may also be the case that some FTBs who had bought before or after the market peak could also be facing problems moving along the property ladder.

This situation is in stark contrast to 2002 when second steppers had an average equity level of £16,582 – equivalent to 22% of the average price for a semi at the time.

Scotland is one of the more affordable areas in the UK for second steppers

Despite the worsening in affordability in the past decade, Scotland is the joint fourth most affordable part of the UK for second steppers. The South East of England is the least affordable UK region with an affordability ratio of 6.3 followed by London (6.1). The West Midlands and East Midlands (both 4.0) are the most affordable locations for those in their first home looking to take their next step on the property ladder.

Nitesh Patel, housing economist at Bank of Scotland, commented:
"Even though many of Scotland's second steppers won't have bought at the height of the market, many are still going to struggle to make that move up the housing ladder. House prices have been falling or remaining flat for the past four years, and as a result many first time owners in Scotland are still in a very low equity position.

"The difficulties faced by aspiring second steppers are having a considerable knock-on impact for potential first-time buyers due to the resulting shortage of properties available on the market with housing chains proving hard to establish."


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