The plight of first-time buyers is rarely out of the headlines but what's the outlook for those wanting to take the second step on the property ladder?
Those wanting to trade up are facing the toughest conditions in a generation.
This is not only in terms of obtaining a mortgage, but also because the equity in their first property has been eroded.
Figures from Lloyds TSB show homes are at their least affordable for second-time buyers in 25 years, with the average buyer needing to borrow more than five times annual earnings.
Equity erosion
As many as 360,000 buyers who bought their first homes at the peak of the housing boom in 2007 could be stuck in them for years to come, according to research from HSBC.
This is because their homes have not appreciated in value in the last few years, or are worth less than they paid for them.
It found that in 2007, the typical first-time buyer property cost £160,000 and required a 10 per cent deposit - £16,000.
But since then, property prices in this bracket have fallen by an around £11,000, meaning just £5,000 of the original deposit remains.
Mark Harris, from broker SPF Private Clients, says: "Homeowners can no longer rely on the uplift in equity to absorb costs, such as stamp duty, legal and surveyor fees and mortgage costs."
Check your mortgage
Crucially, a lot depends on the amount of equity in your existing property, and the relative price of the new home you are looking to buy.
“If neither your existing property, nor the place you are looking to buy, has a demanding loan-to-value (LTV), and your financial situation is good, then your options are much wider,” says David Black, from financial analysis firm Defaqto.
“The first thing to do is check the terms of your existing mortgage and see what costs you will be liable for if you remortgage elsewhere, particularly any early repayment charge.”
‘Porting’ your mortgage
It might be possible to ‘port’ your existing mortgage to the new property but this will be subject to meeting your lender’s underwriting criteria.
“If you can’t – or don’t want to – port the mortgage, you can look elsewhere for a new mortgage or see whether your existing lender has any appropriate deals,” says Black.
“Bear in mind there is a significant premium charged for high LTV deals, with a 90 per cent LTV mortgage typically charging about 1.5 per cent more than an equivalent product at 75 per cent.”
What if you’re in negative equity?
Falling property prices mean many second-time buyers, typically aged between 25 and 34, who want to buy bigger homes so they can start a family, could now find themselves in negative equity.
This is where a borrower is trapped in a mortgage that is greater than the value of their home.
"Many homeowners are effectively mortgage prisoners," says Harris.
"Trying to trade up to a bigger property is difficult unless then can overpay and reduce the outstanding mortgage.
"Many now have to dip into savings, if they have any, to meet these requirements."
Speak to your lender
If you are in negative equity it is worth speaking to your lender as they may be able to help.
“Some lenders, such as Nationwide and Lloyds will let you port your mortgage to a new property, even if you are in negative equity,” says Harris.
It’s also worth speaking to an independent mortgage broker to see if there are any other options.
If your lender is not flexible and you don’t have any spare cash to get yourself out of negative equity, one option is to delay your move.
Alternatively, you could look into renting out your existing home for a while and renting somewhere bigger until you are no longer in negative equity and can sell up and buy elsewhere.
If you decide to go down this route, you must inform both your lender and insurer.
