Harder To Move Up Housing Ladder Than To Get On It
Home affordability for second steppers – those people still living in their first home but looking to take their next step up the property ladder – is at its least favourable level for over a quarter of a century, according to the new Lloyds TSB Homemovers Review.
The Lloyds TSB second stepper housing affordability measure – calculated as the average price of a typical second stepper home minus their current equity position as a ratio of average earnings – stood at 5.2 times gross annual average earnings in October 2011, the highest ratio since records began in 1987. This ratio has nearly doubled over the past decade from 3.0 in 2001 and is significantly above the long-run average of 3.3.
The deterioration in affordability for second steppers over recent years has been driven by the decline in their level of equity as a consequence of the drop in house prices since 2007. The average price paid by a first-time buyer (FTB) has fallen by 23% since the peak of the market in 2007.
Lloyds TSB research found that first-time buyers intend to stay in their first home for an average of four years. On this basis, many potential second steppers in 2011 would have bought their first home at the peak of the market on 2007. These homeowners are, on average, estimated to be in a negative equity position of almost £10,000 (£9,902).
As a result of the decline in house prices since 2007, the home affordability ratio for second steppers (5.2) is now less favourable than for those entering the housing market for the first time (4.1). This is in marked contrast to the situation at the peak of the housing market in 2007 when home affordability for second steppers (4.1) was much more favourable than for FTBs (5.7).
The South East is the least affordable UK region for second steppers with an affordability ratio of 7.1, followed by London (6.8). The West Midlands (4.1) and East Midlands (4.2) are the most affordable locations for those in their first home looking to take their next step on the property ladder.
Suren Thiru, Housing Economist at Lloyds TSB, said: “The deterioration in home affordability over the past few years among those looking to take their second step on the property ladder has been significant. This reflects the impact of the decline in house prices since 2007 on the amount of equity those who bought for the first time at the peak of the market have in their homes. As a result, many are faced with a very tough challenge to make their next move on the property ladder.
“The issue of second stepper affordability is a key one in trying get the housing market moving again with the current difficulties in this segment of the market restricting the supply of starter properties for first-time buyers as well as preventing many of those who need to move from doing so.”