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How to move up the property ladder

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Ever since the credit crunch hit, the attention of the property market has mainly been focussed on first time buyers and finding new ways to help them as they struggle to raise a minimum deposit for their first home. The government introduced the Help to Buy scheme and even introduced savings incentives for first time buyers in the hope of getting the property market moving again.

But one area that’s often overlooked are the so called second-steppers – property owners who’ve now outgrown their first home and are looking at moving into a larger property that’s a better fit for their growing family.

Many people assume that once they have a foot on the property ladder, it’s fairly easy to keep climbing. Making money on one home, then moving onto the next may seem like a breeze to experienced and successful property developers, however in reality, the average family may not find it so easy.

Mind the Gap

According to Lloyds Bank Second Steppers report [1], people living in their first home are having to find an average of £58,400 extra in order to plug the gap between the sale price of their current home and the value of the property that they’d like to buy.

That’s more than double the average deposit paid by a first time buyer, yet the second stepper struggle isn’t as widely recognised.
But if second steppers are delayed in moving, this could have an impact on the flow of the market as they are stuck in the homes that the first time buyers are looking to buy.

Rising house prices have helped some homeowners to increase their equity in their home and move onto their next property, but others have to be increasingly more savvy with their spending, ploughing more money into monthly savings and overpaying their mortgage in order to increase their equity.

If you are one of the frustrated second-steppers who is finding it difficult to move on, here are a few ways to increase your chances of success:

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Keep saving

If you don’t have enough equity in your home to move up to the next rung of the property ladder, then there are two solutions.

All buyers, not just first timers, require a deposit to purchase a home – if your home has risen in price since you bought it, then the equity that you have may be enough to cover this. But don’t forget that even a 10% deposit on a much more expensive home is going to be much more than you paid the first time around.

If you don’t have enough equity from the sale of your current home, then may be required to boost this with savings.

If you’ve been continuously saving since you moved into your first home, then you may find that you have enough to cover the shortfall, otherwise you may just need to wait it out a little longer whilst your savings increase and/or house prices continue to rise, increasing the equity in your current property.

Overpay your Mortgage

With the interest rates on savings accounts remaining at an all-time low, you may be frustrated at the amount of time it will take you to save a decent amount. If you’re only savings goal is to be able to afford a larger deposit for your next home, then you may find that you’re better off ploughing the money into your mortgage instead and making overpayments.

If you can afford to make overpayments on a regular basis (don’t forget to check with your current lender if this is allowed), this will decrease your outstanding debt quicker and as long as house prices remain stable, you should see your equity increasing.

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Gain patience

This might not be what you want to hear but you might be facing a struggle because you are trying to rush into buying a property. Reports often say that homeowners remain in their first home for around 5 years – don’t forget this is an average, and in reality it will take some people much, much longer to make that next step.

Property is expensive and shouldn’t be taking lightly – finding the right home for you and your family (and your finances) can take time and patience.

If you can’t quite make that leap to the next level, your best bet is to wait a little longer, keep an eye on your spending and save a little harder. You may even find that within a year or two you’ve had a pay rise or moved onto a new job with an increased salary. And with each mortgage payment you make on your current home, the equity is always increasing.

It may all come together just at the right time, when that dream home appears on the market.

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References:
[1] Lloyds Bank “Second Steppers” Report

The above post is intended to be informative but does not constitute advice – financial, legal or otherwise. Any opinions given are the author’s own and do not necessarily reflect the views of SO Media or the Mitchell Farrar Group.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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