Is There Any Hope for Second Steppers?
It was more bad news for the property market as according to the latest Lloyds TSB study, so-called ‘second steppers’ face the worst market for a generation. Those that are looking to take their second step on the property ladder by selling their first home and moving to a bigger property actually face being locked-in to their current mortgages.
The survey revealed that with the fall in house prices second steppers now have just over £9,000 equity on average, which is a paltry 5% of the price of the average second rung home. Before the downturn in the market home movers could usually finance a quarter of their move from the sale of their starter home and at the market’s peak this was almost 50%.
The Full Results Make Uncomfortable Reading:
- Current affordability for second steppers was 4.7 times average annual earnings. (Affordability is calculated as average price of typical second rung home minus value of current property, as a ratio to average earnings.) Though this is an improvement on last year it is still second highest level for 25 years.
- The average home mover deposit is now around £60,000, a 70% rise in ten years.
- Average equity is around only £9,000 in starter properties.
- The cost of moving is nearly £9,000 making moving even more costly.
Second steppers are becoming trapped in current mortgages and of the people surveyed nearly a third said they wanted to move but could not. Many would-be first-time sellers also find themselves in negative equity, making moving even more difficult.
How to Deal with Being a Second Stepper
There is no simple solution to this problem. It really depends on your situation. Calculating how much your property is worth and how much you owe is the place to begin. Knowing the exact figures will help decide what the viable options are.
If you are in negative equity it is worth getting some advice about how to get out and see if it would still be possible for you to get a negative equity mortgage. However, it is highly unlikely you will be able to move. If you are struggling to meet payments, whether you are looking to move or not, contact your lender immediately to discuss the situation.
The main problem for second steppers is the higher deposit required. It seems that many are now turning to borrowing from family to find a deposit. The Government does also offer the NewBuy Guarantee which gives second steppers a chance to move to a property with a fraction of the deposit usually required. It may be, however, that this is not an option and you will have to sit tight and try save for a bigger deposit.
I Simply Need a Bigger House
A bigger house may be an absolute necessity even if you cannot get a mortgage for a larger property.
If have a viable exit strategy to get out of your current mortgage then it may be an option to rent a bigger house. You may have to cut the selling price of your starter property but if you desperately need a bigger house, taking the hit and renting may be your only option.
Another popular option is to stay put and add extensions to your home. Renovating your starter home into something bigger may be a good idea to get that extra room and then try to save up more money in the mean time.
The Future
The second stepper problem has created a bottleneck in the market as it means there is also a shortage of properties for first-time buyers. This puts added pressure on the Government to react and help second steppers. For now the best possible thing to do is be pro-active. Know your situation and get as much advice as possible. Talk to lenders and make your property appealing to buyers. If you find sitting tight is your only option, do not give up. Think longer term about how you could improve current living conditions or the best ways to save towards a move. Being pro-active will eventually pay dividends and that is the hope for second stepper to cling on to.
By Michael Hallam
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