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How decade-long homeowners became worse off than first-time buyers
Rebecca Darlington and her husband are keen to sell their first home, an ex-council property in Manchester, and buy somewhere bigger. However, stepping up the housing ladder is proving a leap too far.
“Since we bought nearly 10 years ago, our wages have increased and we would like a bigger house and a bigger garden – but although we can afford our mortgage currently, we couldn’t stretch to higher payments if we bought a more expensive home,” says Darlington, 34, who works in local government.
“We feel like we are treading water right now.”
They are not the only ones struggling. Trading up from a first home to a second is 28pc more expensive than it was five years ago. It is the costliest it has been since the financial crisis, according to analysis by Savills estate agency.
Three-bedroom homes have increased in value more than two-bedroom properties over the past five years, making the leap more difficult. This is partly a hangover from the pandemic, when the race for space meant people were looking for larger homes.
Moving from the average two-bedroom home to a three-bedroom one would currently mean incurring additional mortgage costs of almost ￡7,000 a year. This is based on a three-bedroom home currently costing ￡340,128, which is ￡102,347 more than a two-bedroom home, and based on a 25-year repayment mortgage at a rate of 4.58pc.
In London, the average three-bedroom home costs ￡748,277, which is ￡249,216 more than a two-bed – so trading up would mean paying almost ￡17,000 more on your mortgage annually. In the South East, additional mortgage costs come in at an average of ￡9,095 a year, while in the North West they are ￡4,479.
All this has meant many people have simply stayed put, says Lucian Cook, of Savills, who conducted the analysis.
“Over the past two years, the primary focus of second steppers has been on dealing with increased mortgage costs when their fixed rate has come to an end, putting plans to move up the ladder on ice,” he explains.
By contrast, first-time purchasers have become a stronger force in these years. They have gained the most from the stamp duty holiday – until April next year, the nil-rate threshold for paying the tax on first homes is increased to ￡425,000 from ￡300,000.
Those buying their first homes have also increasingly been helped onto the ladder by their parents. Savills research shows 57pc of all mortgaged first-time buyers had family assistance to buy their first home last year, with the Bank of Mum and Dad doling out ￡9.4bn, almost double the amount they lent or gifted in 2019.
However, this option isn’t open to most second steppers, who typically rely on mortgage equity built up since initial purchase or savings. They also face the hurdle of very high stamp duty bills, and must find the extra money to pay the tax bill upfront. A buyer of an average three-bedroom house in London must pay almost ￡25,000 in stamp duty.
Phil Spencer, property expert and founder of the advice website Move iQ, says: “If you stretched to buy your first home a couple of years ago, the chances are that you’ve put barely a dent in the amount you owe your mortgage lender – and you may not own much more equity either, as house prices have risen slowly in many areas.”
This is having serious knock-on effects. New data has revealed that the fertility rate in England and Wales has collapsed to a record low – a large reason why is that many are unable to afford housing that would accommodate a growing family.
Lucy* bought her first home – a two-bedroom flat in St Albans, Hertfordshire – with her partner five years ago and the couple have a three-year-old son.
“We are bursting at the seams and desperate to have another baby, but we couldn’t afford to buy somewhere bigger,” says Lucy, who works in communications.
“My mum lives nearby and helps out a lot with childcare so if we moved to a cheaper area, we would lose that, plus spend more on commuting. The figures just don’t add up for us at the moment.”
Trade up by moving to a cheaper area
Many of those managing to trade up are only doing so by moving to a cheaper area, especially in more expensive parts of the country. A study by property website Zoopla revealed that half of buyers in the East of England and 43pc of buyers in the South East were looking for a home 10 miles away or further.
Others are relocating many miles away. Edward Hartshorne, of Blenkin & Co estate agency, regularly sees buyers moving out of London and taking the second step in York. The city is expensive for the region, but even the best areas are much cheaper than the capital.
“In York, these buyers still have artisan coffee shops around the corner and the reassurance of a rapid train connection to London,” Hartshorne says. “They are upsizing to small and well-located period houses with space for guests, an additional living room/home office and a garden.”
Local York homeowners, however, often make the second step out of the city to make the most of their budget.
“They will tend to go outwards to the leafy suburbs or satellite villages where they can find a house with more living and outdoor space,” Hartshorne says.
Verity Mc Namara bought her two-bedroom Victorian end of terrace home on the south side of York three years ago. The 30-year-old, who works for Nestlé, married her husband, Killian, in June.
She has put her property on the market for ￡395,000 with Blenkin & Co. Killian’s home in the Heworth area of the city, which was previously rented out, is also on sale, at ￡250,000.
Verity Mc Namara bought her two-bedroom Victorian end of terrace home on the south side of York three years ago - Verity Mc Namara
The couple hope to buy a house in one of the villages around York, towards the market town of Easingwold.
“We love the idea of village life, becoming a local at the pub and re-homing some battery chickens,” says Mc Namara. She and Killian both work from home, so are seeking a four-bedroom house with office space.
“We are looking for our forever home and so, ideally, want to plan for the future and having a family. But it’s a shock to the system seeing four-bedroom house prices,” Mc Namara adds.
“We will absolutely need to compromise on the next purchase and I’m expecting us to be spending our evenings and weekends with paint brushes and tools in hand.”
Verity and her husband, Killian, love the idea of village life - Verity Mc Namara
Cost of building work and competition to consider
Yet buying a doer-upper is easier said than done, with the cost of building works and materials another factor that has disproportionately affected those moving up the ladder.
Ed Stoyle, of Savills, says: “Going back a few years, lots of people moving up the ladder would buy a cheaper house because it needed work and it was also quite cheap to do up. But now, while materials costs have levelled off, as with petrol and beer, they will never come back down again.”
Stoyle shares how he recently helped a couple, both lawyers, that were selling a modest home. Their plan was to move to the countryside with their young children to buy a family house, in which they could live for the next 20 years.
“We found a house that needed work and the price of the renovation works came in at double what I had expected – and I only did up a house myself three years ago.”
And even if second steppers can afford to make the move up the housing ladder, they are increasingly competing with those climbing down it.
“Downsizers are the most active part of the property market and lots of them are looking at houses in villages with a manageable garden – just the same as second steppers,” Stoyle says.
Downsizers have typically paid off their mortgage and are buying in cash, making them tough competition.
Nevertheless, fewer landlords are buying, which takes one competitor out of the race for three and four-bedroom homes.
Molly Derbyshire, of John D Wood & Co estate agency in south west London, explains: “We rarely see investors – almost every sale in the past couple of years has been to owner-occupiers. There is more confidence in the market and good homes are selling quickly, but second steppers can get themselves in the best position by listing and, ideally, selling their properties first.”
Even old strategies such as writing a heartfelt letter to the sellers can work.
“A personal note can make you stand out,” Derbyshire says. “It worked recently for a couple who wrote movingly about wanting to buy a home so they could start a family and the seller picked them over someone who was buying a pied-à-terre.”
However, as mortgage rates come down and house prices start rising again, more people should be able to start trading up, Cook says.
“Current second steppers haven’t had to deal with negative equity in the way they did in the mid-1990s, or a dearth of equity as was the case in the early 2010s,” he explains.
“That means their numbers should start to recover as interest rates continue to ease, though they will struggle to skip a rung and move from a two-bedroom home to a four-bedroom one without further assistance from the Bank of Mum and Dad.”
For Darlington and her husband, who have painstakingly renovated their first home, putting in a new kitchen, bathroom and boiler, as well as a new driveway and fencing, it’s a case of waiting and saving as much money as they can.
They use the Sprive mortgage overpayment app to earn cashback on their everyday shopping at major brands, which they put towards their mortgage.
“We are very grateful we did our renovations,” she says. “We never said this would be our forever home but we have no idea when we will move from it.”
