A great many pages are dedicated to the ongoing plight of first-time buyers and their struggle to get onto the ever-expensive housing ladder, but what of the sometimes forgotten second-time buyer?
For some reason, in the UK homeownership is generally something to aspire to and carries a certain level of kudos – some may argue against this, but many pub and dinner party conversations testify that it is true. This may explain the reason why the challenges of second-time buyers are sometimes disregarded in the big scheme of things – they have already achieved the ‘dream’.
There are many reasons why second-timers warrant some consideration. For the most part, they are intrinsically linked to the first-time buyers’ predicament because they tend to own the homes that first-time buyers can afford. To free up those homes, second-time buyers need to be able to move up the ladder and that is where there is a problem. In many cases, they can’t or won’t move.
Looking at recent housing market activity, there’s no reason why this is the case. Over recent months the housing market has been stronger than was expected at the turn of the year. In particular, the number of transactions has picked up from the low levels seen in the first part of 2005 and house price growth has regained its momentum. However, the upward growth house price in indices indicates that our familiar friend – or is that foe? – affordability is not only a problem for first-time buyers, but for second timers too.
Making the decision later
A recent study by the Council of Mortgage Lenders (CML) states that people are getting onto the property ladder later in life than they were 10 or 20 years ago, and house price inflation is a contributory factor. Wage increases have not kept pace with house prices and this has had an impact on existing home owners’ ability to move up to a bigger property. Recent research by Alliance & Leicester indicates the majority of homeowners in their 30s planning to buy another property are planning to spend up to £100,000 more next time around, and we can surmise that many of these will be second-time buyers. The impact of this additional mortgage, even if funded in some part by a growth in the equity of their existing property, could be a stumbling block.
Many believe it is advisable to put down a 20 per cent deposit wherever possible. The profits from the sale of the first house may be enough to put down a deposit of this size and could help cover any unexpected expenses that come with buying a home. However, with the increase in the trend to remortgage and take existing equity out of their home – perhaps to fund debt consolidation or larger purchases – some second-time buyers will find that their existing equity in no way covers the ‘ideal’ deposit on their next home.
Affordability based lending decisions will help and evidence of regular monthly mortgage payments and the satisfactory servicing of other financial commitments will strengthen second-timers’ ability to obtain a larger mortgage. Having a responsible attitude to debt is just as important as their income.
It all adds up
But there are not only the house purchase and mortgage costs to add up. High moving costs, such as Stamp Duty, will take a sizeable chunk out of most people’s budget and the higher living costs associated with a typically larger second home need to be accounted for, such as council tax and utility bills.
A recent report confirmed this, showing that a significant number of prospective second-time buyers felt unable to afford the bigger mortgage needed for a new home while some were put off by the Stamp Duty and legal fees involved.
With rising house prices likely to make things even harder for second-time buyers, the industry has frequently called for a review of Stamp Duty to ease some of the pressure. Some have suggested a more detailed gradient system rather than the large jumps between house price bands that currently exist. This could help to free up the second-time buyer stagnation that is occurring.
The ‘staying put’ approach
The reason many second-time buyers will be looking for a new home is space, perhaps because of a new, or growing, family or simply because they’ve outgrown their current home. Another bedroom, a bigger garden, a separate dining room are just some of the possible ‘must haves’ for second-timers, and if they are too expensive to buy in a new property then the alternative can be to look at extending their existing home to meet some of these needs.
Home improvements, such as extension work very often take the form of a new conservatory, refurbishing or extending existing bathroom and kitchen facilities, or perhaps undertaking a roof conversion or the addition of a bedroom to the existing property. This ‘staying put’ approach is generally bad news for first-time buyers, who would typically be looking to purchase the second timer’s previous property as they move up the ladder. The property industry has reported a shortage of homes for sale compared to the potential number of buyers over recent months, adding weight to suggestions that those looking to buy a second home are opting to improve their homes rather than move. This has the potential of creating a bottle neck in the housing market for both new and existing property owners.
While improving rather than moving is a viable option for some, it may not be possible or desirable to others. Research findings indicate that one-in-three second-time buyers are keen to move because they do not like their current area and a tenth of prospective movers suggest they needed to move to reduce their commuting time to work or to be closer to family and friends. Sacrifices made to get on the first rung of the property ladder become the very reason why they want to move onward and upward.
Additional burdens
As well as additional costs, there are other burdens for second-time buyers to consider. For instance they will probably experience the challenges of being part of two property chains, having both a property to sell and one to buy. This all needs to be managed within an appropriate time scale to ensure they do not lose their intended purchase. Indeed for those who bought a brand new starter home, the property chain will be a new concept altogether. This can all be a bit daunting, not to mention time-consuming, which may be off-putting for some, albeit temporarily.
To ally some of these fears, second-time buyers can make use of the huge amount of information available on the internet when looking for a new property. There are online search engines that enable users to research the number and the type of homes on the market as well as comparing the differing levels of council taxes payable. More importantly, it is a useful tool to compare neighbourhoods and the quality of schools near particular housing districts within each town or city. Indeed some websites even give details of how much properties were sold for in any given area, which can help give a clear indication of what second-timers will have to pay for what they want. Doing the research will make them more knowledgeable and can be a real help to making a good purchase, while boosting confidence in their decisions.
Second-timers also benefit from the type of financial confidence that comes from having already owned a property and successfully repaid their mortgage in full each month. They will also have some experience of the financial commitments that go hand-in-hand with owning their own property, having perhaps experienced the highs of the increasing value of their home, along with the lows of, for example, a broken boiler.
So, on paper at least, second-time buyers are in a good position; they’ve already taken that tentative first step onto the property ladder and will benefit from a greater level of confidence and financial security than the less experienced first-time buyer. They are most likely to know what they want and will have some idea of how and when they want to achieve it. Ultimately, like any other property purchaser, the key question that must be asked is whether the mortgage loan is affordable – this is where valuable and sensible advice will help many second-time buyers make that important next step up the property ladder.
