Second step home purchasing 'tough'

Home owners trying to take their second step on the property ladder face some of the toughest market conditions seen in a generation, a study has said.

The typical cost for a "second-stepper" to trade up to their next home is around 4.7 times annual average earnings, the second highest ratio since records began 25 years ago, according to Lloyds TSB's home movers review.

The situation has improved slightly on a year ago, when the ratio stood at 5.2, an even bigger blow to those trying to take their next step on the ladder. But the study raised concerns that the high hurdles still faced by this sector are creating a "bottleneck" in the housing market, by limiting the choice available to first-time buyers as well as creating a greater scarcity of potential home buyers higher up the chain.

The affordability ratio is calculated as the average price of a typical second-stepper home minus the typical second-stepper's current equity position, as a ratio of average earnings.

Researchers found that people tend to remain in their first homes for around four years, and so people trying to take their next step on the property ladder were in an even worse position last year as they would tend to have bought their first home right at the top of the market.

Many would-be second-steppers have been left stuck in negative equity, making the prospect of trading up even harder as lenders tighten their borrowing criteria amid the weak economy.

Lloyds estimated that following falls in house prices over recent years, would-be second-steppers now have just over £9,000 in equity on average, the equivalent to just 5% of the price of a typical second-stepper home, assumed to be a semi-detached house costing just over £165,500.

The long-term average home affordability ratio for second-steppers is also much lower at just over three times earnings, and this sector potentially faces an even bigger struggle than first-time buyers, whose homes will stretch them by 4.1 times earnings on average.

Suren Thiru, housing economist at Lloyds TSB, said: "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."

Housing Minister Grant Shapps said: "I'm determined to help both aspiring first-time buyers and those who have outgrown their homes but have been unable to move. That's why the NewBuy Guarantee is the first scheme of its kind to not be confined just to those looking to get on to the property ladder for the first time, but to also help second-time buyers to buy a newly-built home with just a fraction of the deposit that they would normally require."