Homeowners 'cannot afford to trade up'

Growing numbers of homeowners are struggling to trade up the property ladder due to a combination of falling house prices, the mortgage drought and the shortage of first-time buyers, a report indicated today.

So-called second steppers, people buying their second home, have been hit hard by the problems of the past few years, which have left many trapped in small first-time buyer homes unable to afford to move up the ladder, according to Lloyds TSB.

The typical first-time buyer stays in their first home for four years, meaning many of those looking to buy their second property now will have bought their first one when house prices peaked.

As a result, it is estimated that 9% of second steppers are in negative equity and a further 18% have insufficient equity in their property to make a move.

Since this group bought their first home, the average price of a starter property has fallen from £148,001 to £119.960.

The situation is made worse by the fact that 95% mortgages were still widely available when this group bought, meaning many did not put down large deposits that would have cushioned them from the house price falls.

At the same time, 43% admitted they had not been able to save any money since they first got on to the property ladder.

Lloyds estimates that the difference between the price of a first-time buyer property and one for a second stepper is around £48,200, or 32%, while this group also needs to find an additional £5,423 to cover the cost of moving, such as stamp duty, estate agents' fees and solicitors' fees.

Even if second steppers could raise this sum, they are still faced with the problem of who will buy their home, with 84% saying they would expect to sell it to a first-time buyer, who are also struggling to get a mortgage.

Only 13% of people said they would be prepared to reduce their asking price if they were not able to sell their home at the level they were marketing it for.

Lloyds said this group of buyers were as crucial to a sustainable housing market as first-time buyers.

But figures suggest that sales to both of these groups are continuing to decline, while they are increasing for people buying higher up the property ladder.

The number of homes changing hands for less than £120,000 fell by 14% during 2010, while sales of properties in the £120,000 to £200,000 bracket reduced by 13%, the report also showed.

But there was a slight increase in the number of homes sold for between £200,000 and £285,000, while sales of properties worth more than £500,000 jumped by nearly a third.

Colin Walsh, managing director of mortgages at Lloyds Banking Group, said: "The challenges facing first-time buyers receive a lot of deserved attention but to achieve a sustainable housing market, we have to look at every rung of the ladder.

"Many borrowers who bought their first home in more recent years have found their equity position hit hard by the period of house price decline.

"At the moment, many are finding it just as tough to make the next move as it was to make their first."

Lloyds has launched a new equity support scheme to help people move home even if they are in negative equity or do not have a large equity stake in their property.

Under the scheme, existing customers can move their mortgage to a new property, even if they are in negative equity or breach the normal loan to value requirements.

People trading up the ladder would need to find money to make up the difference between the price they sold their previous property for and the price of their new one, as the group would not advance them more money, but it would allow them to have a mortgage with an LTV of greater than 100% on their new home, if they were previously in negative equity.