Doors open for second steppers trapped in their homes
Chiara Cavaglieri takes a look at schemes to help the 'forgotten' property owners who want to move on
The plight of first-time buyers has been well documented and various schemes have been introduced to stimulate the housing market from the bottom up, but many of these exclude a different section of the market – second steppers – which has also been flailing.
The average age for a second purchase is now 41 and little has improved in the past year for those looking to move up onto the second rung of the housing ladder, according to a new report from Lloyds TSB.
"First-time sellers continue to be faced with some very real and tough challenges when trying to make their next move," says Stephen Noakes, the mortgage director for Lloyds TSB, who says that this then stifles the whole market. "If second steppers get stuck on the first rung, movement at the bottom half of the ladder comes to a standstill, and this bottleneck will not only restrict the supply of starter properties but will have a knock-on effect across the whole of the housing market."
Some 61 per cent of would-be second steppers were unable to move up the ladder and over half said that market conditions hadn't improved for them compared with the previous year, the bank's survey found. Raising a deposit was the biggest barrier – the average deposit required for a second stepper in 2012 was £58,836, almost double the deposit required in 2002 of £31,189.
It's easy to see why so many have been struggling. Lloyds found that the average second stepper has just over £40,000 equity in their current property and almost a third has less than £20,000. The list of challenges doesn't stop there. "Stagnant" homeowners also face a lack of affordable housing, high transaction costs, negative equity and fewer offers from prospective buyers.
This is forcing some people to put their life plans on hold. A study by property website Rightmove found that 40 per cent are stuck in a home that is too small for their family and a further 7 per cent stated they have put off starting a family because they don't have the room. Those wanting to move to a new area, often for work, or to be closer to family, are equally frustrated.
There is some optimism, however, as almost a third of those surveyed by Lloyds think the housing market will improve this year and more than one in five are hopeful that it will be easier to sell their home.
It may also be the case that there are more mortgages available today than many second steppers realise. Lending is improving, thanks in part to the Bank of England's Funding for Lending scheme, and while credit conditions are still tight things are looking up.
"The scheme is allowing more and more people at the margin to make the move that they been delaying for a good number of years. There is still a long way to go but at least it seems the direction of travel is correct," says Alex Solomon from Rightmove.
Although the keenest rates are still reserved for those with a large amount of equity, the rates for homeowners with a smaller deposit have also been improving, says David Hollingworth of mortgage broker London & Country, pointing to a two-year fixed rate from Chelsea Building Society at 3.69 per cent to 90 per cent loan-to-value (LTV), although it does carry a big fee of £1,825.
The first port of call if you do want to make the move is to talk to your existing lender to see how they might be able to help. Some may be willing to increase their borrowing limits if you have a decent repayment record, while others may offer specific incentives such as the equity support scheme from Lloyds TSB which allows customers with low or negative equity to move to a new property by using their savings to make an additional deposit, rather than increasing their existing borrowing.
The LTV actually improves because there is no additional borrowing and you have moved to a more expensive property. As an example, if you own a property worth £110,000 and had a mortgage of £130,000, you could trade up to a £120,000 property without increasing your loan, using £10,000 in savings as a deposit, bringing the LTV down from 118 per cent to 108 per cent.
This is of little help if you used up all of your savings buying your first home, of course, but there are also several products on the market for those with family members willing to help. The Lloyds Lend a Hand mortgage, for example, enables borrowers to take out a mortgage with a deposit of just 5 per cent as long as the funds are backed up with the savings of a parent or other family member. The helper's money is used to offset the risk of default and they earn competitive interest on their savings, fixed at 2.70 per cent AER for three and a half years.
"The Barclays Family Springboard mortgage also allows up to 95 per cent lending if the parent is prepared to lock down 10 per cent of the purchase price in cash as additional security," says Mr Hollingworth. "That means the cash remains in the parent's name instead of being gifted to the child but it helps the child to reach a higher loan to value. It offers a 3-year fixed rate at 4.69 per cent with a £499 fee".
Similarly, Aldermore's Family Guarantee will lend as much as 100 per cent of the purchase price by using equity in the parental home as collateral, with two and three-year fixes at 5.98 per cent with a £1,298 fee.
The Government has also backed NewBuy, a scheme open to both first and second steppers which helps buyers to obtain a 95 per cent LTV mortgage on new-build properties. Take-up was very low initially with only 1,500 completed purchases at the end of last year, but numbers picked up and the Council of Mortgage Lenders has called for the scheme to be extended beyond 2015 in the Budget.
For the first six months of 2013, NewBuy is also combining with part- exchange allowing builders to buy your existing property when they sell you a newly-built home, with a NewBuy mortgage.
Jamie Falconer, a 41-year-old chartered accountant and his wife Katherine, 31, a maths teacher, are typical of struggling second steppers.
The couple bought their first home, a Bristol townhouse in 2007, but they now have a 10-month-old daughter and need more space.
They sold their first home before Christmas, but are now renting after struggling to find a suitable replacement.
"With Alexa's birth, we realised we were outgrowing our house," says Jamie. "It seemed the right time to move to a bigger family home in an area we could see ourselves living in for a long time, with good local schools.
"But, affordable houses in the right areas simply don't come to market very often – and when they do multiple offers push the prices up." says Jamie, who believes decent mortgage products would go a long way to improving things.
"As a second stepper very often you want a house to last you 10, or even 20 years-plus, so you are looking to stretch yourself. This can only be done if there are good mortgage products available."
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