The 360,000 first-time buyers who bought a property in 2007 are likely to be “trapped” in their first homes, according to new research from HSBC.
First-time buyer house prices have fallen 7% on average over this period, eroding the equity these first-time buyers have in their homes and suggesting that taking the next step up the ladder will be almost impossible for those who have not been saving.
HSBC’s research shows that a typical first-time buyer who bought in 2007 with a 10% deposit would have started with £16,000 equity. However, much of this will have been eroded by the £11,000 fall in their property value, meaning just £5,000 of the original deposit remains.
Assuming these homeowners have been making capital repayments on the mortgage for the past four years, they will now have paid £11,000 off the loan, so would currently have £16,000 equity in their property; almost exactly the same as when they started.
However, the analysis shows that to move up the ladder and buy the average UK home, these second-time buyers need to raise £27,000 to cover the cost of selling their first home, raising a 10% deposit on the new home and paying for stamp duty.
Pete Dockar, head of mortgages at HSBC, commented: “These findings highlight the need to save or pay down an existing mortgage in order to fund that second step on the property ladder; first-time buyers can no longer rely on rising house prices to provide them with the deposit needed for their second purchase.
“Making overpayments on the mortgage is one way that these movers can help build up their finances to take the next step up the property ladder. This increases the equity in their first home, and bolsters the deposit available to them for their onward move.”
