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David Finlay: Mortgage market must concentrate on homemovers

Lenders need to focus on struggling second steppers to help the market get going again

David Finlay MM blog

Chancellor George Osborne proclaimed the recent Budget as one designed “for people who aspire to own their own homes”.

As well as acknowledging first-time buyer issues, the chancellor highlighted the challenges facing second-

time buyers.

If we do not make an effort to address the plight of these second steppers and trader-uppers, it will continue to affect the FTB market and the availability of affordable housing to potential homeowners everywhere.

The lingering hangover from the credit crunch has meant that many homeowners have had to batten down the hatches in terms of their trading-up aspirations.

A mix of funding, lending and affordability issues have worked to halt many such plans with more and more people having to satisfy themselves with improving existing homes rather than embarking upon a further step up the housing ladder.

But for those in search of additional space in a new home, how much might that extra bedroom actually cost?

In research undertaken in December, Barclays found that British homeowners looking to upsize their homes can expect the difference in property values to double as they move up the ladder. It found that with half of British homeowners planning to move house within the next five years and almost two-thirds (58 per cent) setting their sights on a bigger home, they are going to have to dig deep to fulfil their dreams.

The analysis of 50,000 mortgage applications found that homeowners looking to move from a one to a two-bedroom property can expect to pay an average of £26,000 more. But homeowners looking to take a further step up the ladder by moving from a two to a three-bedroom property can expect to pay more than double that amount – on average £61,660 – for the third bedroom.

And this price difference doubles again for a move from three to four bedrooms with homeowners incurring an average price hike of £133,671.

The figures also highlight the varying picture across the country. While those living in the North-east can expect to face an approximate £10,000 price increase by moving from a one to a two-bedroom home, those in the East can expect to pay four times that amount at £46,000. London dwellers, meanwhile, face a staggering average of £91,000 to move from one to two bedrooms.

These price increases may have come as a shock to homeowners as our research also reveals their misconceptions about how much the next step on the ladder is likely to cost. The study showed homeowners pricing a move from a three

to a four-bedroom house at just under £100,000.

But in addition to Govern­ment support, the increasingly competitive lending arena is making greater strides to help meet demand from this stricken sector.

Next-time buyer-specific mortgages are available and it was encouraging to see Kent Reliance recently launch a 95 per cent LTV next-time buyer deal aimed at existing mortgage holders with limited equity in their property.

It remains rather a niche product as it requires a minimum loan size of £300,000, borrowers having held a residential mortgage

for a minimum of three years and an income of at least £75,000 but it will certainly meet some borrowing requirements.

As ever, more could be done, but it is fair to say that the lending sector in general is moving in the right direction.

The second steppers/trader-uppers will remain a focal point for many lenders as they look to increase their residential mortgage portfolios.

Let us hope that the increased Government support will provide even greater choice and opportunity so that existing homeowners can move further up the ladder and FTBs will be sufficiently encouraged to fill the affordable housing gaps left behind.

David Finlay is intermediary managing director for Barclays



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