Bank of Scotland

Second steppers' housing affordability improves – but homemover market still struggling

31 August 2013

Home affordability for second steppers – those home owners still living in their first home but looking to take their next step up the property ladder - has improved in the past year as a result of higher equity levels, according to the latest Bank of Scotland Homemovers Review.

Housing affordability improves in the past year, but has declined in the past decade
Housing affordability for Scotland's second steppers – calculated as the average price of a typical second stepper home1 less their current equity position2 as a ratio of average earnings – stood at 3.9 times gross annual average earnings in June 2013. This measure of affordability has risen significantly over the past decade – signifying a decline in affordability - from 2.6 in 2003. There has been a modest improvement since June 2012 when the ratio stood at 4.0.

Rise in equity levels improves second stepper housing affordability
The typical potential second stepper in June 2013 bought their first home in 20083. Such a homeowner is, on average, estimated to have an equity level of £13,9854 - equivalent to 10% of the average price for a semi-detached house (£134, 667) which is a typical second stepper home. This is an improvement on a year earlier when the typical second stepper equity level (£9,498) was estimated to be 7% of the average price for a semi-detached home.

Despite this improvement, equity levels for second steppers remain low by recent standards. For example, the typical second stepper in 2007 was able to fund close to half (48%) of their next home through equity built up in their first property.

In addition, with the average cost of moving estimated at close to £7,0005, it is unlikely that the increase in equity over the past year will be sufficient for many potential second steppers to be able to fund a move to their next home.

Nitesh Patel, housing economist at Bank of Scotland, commented:
"Housing affordability for the typical second stepper in Scotland has marginally improved in the past year. Nonetheless, there are many potential second steppers who are still in their first home which they bought in the run-up to, and at, the peak in house prices in 2008. Many of these homeowners may still be unable to move due to having either very low, or negative, equity in their homes.

"The lack of equity for many homeowners in their existing home largely explains why the number of Scottish homemovers in the first six months of 2013 rose by only 2% compared with a year earlier; while the number of first-time buyers grew by 22 % over the period."

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