Low equity levels continue to hinder moves up housing ladder

Second steppers’ current equity position would account for just 7% of the price of a typical second stepper home. Compared with almost half (42%) in 2005.

The average home mover deposit in 2012 was £61,743. This is a rise of 59% from the average of £38,866 in 2002.

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 – stands at 4.6 times gross annual full-time average earnings for 2012. This is significantly higher than a decade earlier when the ratio was 2.9 times gross annual average earnings, and well above the long-term average of 3.3.

However, second stepper affordability has improved slightly on the previous year – the Lloyds TSB measure reached its highest level, 5.4, 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.

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 £11,5004 – equivalent to 7% of the average price for a semi-detached house (£162,170). With the average cost of moving estimated at close to £9,000, this level of equity leaves very little to put down as a deposit on the 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 first-time buyers 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 £45,000 – equivalent to 38% of the average price for a semi at the time.

The South East is the least affordable UK region for second steppers with an average affordability ratio of 6.3, followed by London (6.1). The West Midlands and East Midlands (both 4.0) are the most affordable regions for those in their first home looking to take their next step on the property ladder.

Nitesh Patel, housing economist at Lloyds TSB, said: "Even though many of today’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 flat for the past four years, and as a result many 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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