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27 Thursday Dec 2012

Should we feel sorry for trapped second steppers? Posted by:

Apparently, it’s not just first-time buyers _ or the lack of them _ that we should be worrying about. Those who are already on the first rung of the housing ladder but are having trouble moving up it also deserve our sympathy, according to a new survey from Lloyds TSB. Some 61 per cent of these ‘second steppers’ are effectively mortgage prisoners because they can’t sell their first home.

Perhaps this isn’t surprising. Many of these ‘homeowners’ have little or no equity in their properties as prices have fallen since they first got the keys to the door when the market was at its peak. It is difficult to get a mortgage this time around because they don’t meet lenders’ higher deposit requirements. In the past, rising prices pretty much meant that not only could the increased equity in the property cover the deposit on the next one, it also gave the buyer funds to cover the cost of moving but this is no longer the case. Affordability is also an issue for second steppers _ their incomes may have remained static or even fallen, while inflation has soared and lenders have tightened their criteria.

Indeed, the survey finds that a second stepper could be worse off than a first-time buyer. While the first-time buyer may not have much in the way of a deposit, if the second stepper is deep in negative equity and has no savings to rectify this situation, then they have even more ground to make up.

But should we feel sorry for those who are already on the housing ladder and simply struggling to move further up it than they would like? Is it not simply a case of ‘hard luck’ and they should be grateful for what they have?

Well, yes and no. If the second stepper can’t move up the housing ladder then the first-time buyer is going to find it even more difficult to get on it because there is a shortage of the sort of property that they would typically opt for coming onto the market. There is already a lack of these ‘starter’ homes _ one or two-bed flats, or small houses _ as buy-to-let landlords snap up such properties to take advantage of the growing numbers of would-be first-time buyers who are being forced to rent.
Second steppers demand that the government take action, says the survey. But one would think the government has enough on its plate. If it was bothered about helping second steppers it could have widened the stamp duty exemption to include them as well as first-time buyers, which would help with the crippling cost of moving. But with the government failing to indicate that it will extend the tax exemption beyond the 24 March deadline for first-time buyers, second steppers shouldn’t hold their collective breath.

Those championing second steppers may be better off lobbying lenders rather than government. Some lenders are already flexible; letting existing borrowers in negative equity or with precious little of it, port their mortgage or take out another deal if they want to move. Although such a stance has its critics who argue that those in negative equity should not be encouraged or rewarded, more of this sort of leniency would be a huge help, assist second steppers onto the next rung of the housing ladder, and free up more homes for first-time buyers.