Research by Lloyds TSB indicates higher equity levels have helped to improve home affordability for “second steppers” - homeowners currently living in their first home but looking to take the next step up the property ladder.
The Lloyds TSB Homemover Review calculates housing affordability as the average price of a typical second home minus the homemover’s current equity position.
In June 2013 the figure stood at 4.4 times gross average annual earnings, down from 4.9 in June 2012.
Improving house prices in the last twelve months have helped the typical second stepper’s equity position rise rapidly from just 1 per cent of the price of an average second home – £165,059 – in 2012 to 13 per cent, or £21,200 by June this year.
There was a 2 per cent decrease in homemover mortgages in the first half of 2013 – the same time frame that saw a 19 per cent increase in first-time buyer approvals.
Lloyds TSB housing economist Nitesh Patel says, “Affordability has improved for the second stepper in the past year. Nonetheless, there are many potential who are still in their first home which they bought in the run-up to, and at, the peak in house prices in 2007.”
“Many of these homeowners may still be unable to move due to having either very low, or negative, equity in their homes.”
The affordability measure used by Lloyds has shown an improved position for second steppers from twelve months ago but the ratio is still vastly higher than a decade ago when the multiple was only 2.9.
Lloyds asserts that the improved affordability since June 2012 reflects that today’s second steppers include those who made their first home purchase after the housing market peak in 2008 whereas those who purchased a year earlier had entered at the height of the market.
The improvements in affordability are welcomed naturally but the reality is that equity levels for second steppers remain low by recent standards. In 2005, for example, typical second steppers were able to fund roughly 44 per cent of their next home through equity built in their first property.
The review also highlights a regional bias in affordability with the West Midlands and East Midlands the most affordable parts of the UK – both measuring 3.1. London is expectedly the least affordable region with an affordability ratio of 5.7.