BRICKING IT Homeowners unable to move up the ladder due to rising house prices, stamp duty and a lack of housing

Current house prices mean that many second steppers who are in need of more space are having to stay put because they can't afford to move

09 May 2018 - 16:05

SOME home owners are being forced to put their lives on hold as they struggle make the next step on the property ladder.

These "second steppers" are generally couples and young families who are looking to swap their first-time buyer homes for ones with more space or in a different area but are unable to move due to rising house prices, stamp duty and a stagnant property market.

Yesterday, Halifax reported the biggest monthly decline in house prices for seven and half years, by 3.1 per cent in April. 

But over the last year, prices are still up 2.2 per cent, according to the UK's biggest mortgage provider.

Recent research by Nationwide Building Society found that a fifth of second steppers said that they have found themselves stuck in a house that is too small for their family or in an area they don’t like due to housing affordability.

Even though strong house prices mean that second steppers are likely to have made money on their current homes, they often can't afford to move on.

 

'Build an extension instead of moving house'

AFTER buying her three-bedroom, mid terrace home in Hull ten years ago, Kirsty Holden, now a mum of two, felt the family was out growing the property.

"It was the biggest we could afford at the time and we bought this as our forever home with having children in mind," said Kirsty.

But once the kids came along, the couple realised how much more space they needed, but were shocked at the high cost of moving.

"With the cost of advertising our home to sell, the moving and legal fees, the land registry searches on a new property and everything else that too comes with a buying a house, we just didn’t see how we could do it," she said.

"On top of that, just to afford a bigger home we would have been forced to buy something that needed renovating."

Kirsty, who blogs at themoneysavingmum.com, said that she feels that hardworking families being priced out of moving to their next home.

The couple chose to build an extension instead.

"Our extension cost us with a new kitchen and decorating around £20,000," she said.

"Our monthly mortgage payments are only £60 more per month than they used to be, I hate to think about how much more we would be paying had we opted to move."

Today's typical second steppers bought their first property in 2014, when the average price of a first-time home was £167,137, according to Lloyds Banking Group.

Based on the latest house price figures, selling their home for today's average first-time buyer house price of £211,296 would leave them with an extra £85,877 to put towards their next home, up from £68,629 four years ago.

Unfortunately, the price gap for a bigger home is much larger, at £135,985 for a detached property.

This means that second steppers must add an extra £50,108 to their existing mortgage, which for many is impossible.

What's more, those who have purchased properties using Help to Buy may also find that it takes longer to get the funds for their next home.

"These homeowners will struggle to be able to create enough equity required for their next mortgage, as their first help-to-buy mortgage was obtained with only a fiver per cent deposit, many normal residential mortgages will require 20 per cent or more," said Mark Homer, co-founder of Progressive Property.

To add even more financial pressure, the costs associated with moving, like solicitor fees and stamp duty, can often run into tens of thousands of pounds.

It means that many families simply can't afford to move up the ladder – with those in London looking to trade up being the most affected thanks to the high house prices in the capital.

 Research by Nationwide found that many second steppers are putting their lives on hold thanks to unaffordable housing
Getty - Contributor
 
Research by Nationwide found that many second steppers are putting their lives on hold thanks to unaffordable housing

"Second steppers are often forced to stay in homes that are too small for them because they simply cannot afford the huge stamp duty charges they’d have to pay if they traded up," said Sarah Beeny, founder of online estate agent, Tepilo.com.

"Someone buying a home for £500,000 would have to pay £15,000, which is a huge amount to most people.

"Then there's then solicitors' fees, survey costs, estate agent charges and removal costs to add on, pushing the total up higher."

What's more, these costs can easily eat into any added value that's been made on the property, which means that an even bigger mortgage is needed.

"This means the middle and top end of the market are stagnating and many families are deciding to extend rather than move up," said Beeny.

"This then impacts the bottom end of the market, as fewer homes become available."

'Family of four living in a two bedroom flat'

FOR Moira O’Neill, living with her husband and two daughters in a two-bedroom flat in isn’t ideal, but the couple has been put off buying a bigger property due to the high cost of moving.

“When we bought the flat, we prioritised living in a nice London area over space,” she said.

“Over the years, I've seen larger properties that we could afford locally but huge cost of stamp duty means we've been put off moving.”

Moira lives in Muswell Hill, North London where data from Foxtons, the estate agents, shows the average cost of a three-bedroom property is a whopping £958,738.

"The cost of stamp duty on a family house in London is a huge barrier to moving,” said Moira, head of personal finance at Interactive Investor.

Stamp Duty is paid at different rates, depending on the purchase price and means that the couple would face an average bill of £39,623 for stamp duty alone.

“I would prefer to invest the money in a tax efficient individual savings account (Isa) or pension for my retirement," she said.

According to the Nationwide research, eight in 10 homeowners looking for a bigger property said that they could be convinced to stay in their current home if they could make some changes, whether an extension or a kitchen renovation.

But what can growing families that need more space do to overcome this challenge? Is there a way to make moving to a bigger home more affordable?

Remortgaging to release some equity to carry out home improvements such as a loft conversion is one option if the borrower can show that they can keep up with the repayments for the bigger loan.

David Hollingworth, from London & Country Mortgages said that some second steppers who haven't had their mortgage rate reviewed could find that the cost of borrowing a larger amount is mitigated by shopping around for a better rate.

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