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Ben Thompson: The market won’t move until second steppers can

Ben Thompson

Over the last three months, an array of mortgage products have been launched by both high-street banks and local building societies which have been specifically geared towards increasing the number of first-time buyers able to get on the market.

The Government has also recently launched its FirstBuy scheme with the same objective in mind and which allows prospective homeowners to look for 75 per cent LTV mortgages with deposits of only 5 per cent (the scheme gives buyers an equity loan up to 20 per cent of the full price of the property).

Whilst such initiatives and products are most welcome and indeed are much-needed in order to stimulate growth in the sector, with the focus of lenders and officials being so firmly fixed on first-time buyers, are there other groups which are being neglected?

Second steppers, or those who have bought their first home and are looking to move to another property, are often forgotten by the industry when it comes to discussing how hard it can be to obtain mortgage finance. They are, however, a significant section of the market and they deserve consideration.

Prior to the housing market boom and bust, homeowners who had outgrown their initial property or whose circumstances had changed were able to move home freely and relatively easily. Mortgages were readily available and although stamp duty still applied, it was far lower than it is today and typically paid for from equity, so movers did not ‘feel’ it in the same sense.

Today, not only does stamp duty cost more but equity has also fallen, further increasing its impact. To add to this, lenders have become increasingly risk adverse making mortgages significantly harder to secure, even for those already on the ladder.

That said, property owners fortunate enough to have equity are able to get fantastic mortgage rates.

The problem is, as stamp duty is still high, many are delaying moving until they absolutely have to. As a result, even though moving home should appear to be affordable for many on paper, second steppers up and down the country are being forced to remain in their current houses, sparking the trend of ‘improving not moving’.

In the coming months, it will be interesting to see how this trend progresses, especially with the latest announcement of relaxed planning rules.

The most significant consequence of stuck second steppers is probably the knock-on effect that they have on first-time buyers. With homeowners not moving on, there is a lack of suitable first homes on the market, reducing the choice for potential buyers and therefore keeping prices high due to lack of supply.

The UK economy as a whole needs a thriving property sector to help stimulate growth, so this blockage in the market clearly has far-reaching repercussions. While lenders do still need to do as much as possible to help people make that first step on to the ladder, there are clearly issues further up the chain which also need to be addressed. Many would agree that good place to start on this would be a rethink on stamp duty.

Ben Thompson is managing director of Legal & General Mortgage Club

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