ith the number of first-time buyers recently hitting a five-year high, it looks as though the property market is in motion once again. The online realm is rife with a wealth of advice for first time buyers. But what about those who are looking to take their second or third steps on the property ladder?
Well, for some 360,000 buyers who bought their first homes at the peak of the housing boom in 2007, the outlook might not be quite so rosy. Houses bought at this time will not have appreciated in value over the last six years, meaning they find themselves trapped in limited or negative equity.
Coupled with the fact that so-called ‘second-steppers’ have seen their trading-up costs more than double over the last decade according to recent figures, this creates a bottleneck of people unable to progress in the market.
So, what can be done to help make that elusive second step less hard to reach?
In a bid to boost the housing market, UK government has been making a bid to help families upgrade to a more spacious home. They’re doing this by enabling second homes to be bought with just a five percent deposit by extending the Newbuy scheme.
In some areas, approximately 30 per cent of homeowners are in negative equity, and raising enough money to cover a deposit is often the biggest barrier to moving up. If you’re in negative equity and are fortunate enough to be able to dip into savings may find this scheme extremely helpful.
‘Porting’ Your Mortgage
If you already own a home with a mortgage, you may be able to apply your current mortgage to your new home keeping the interest rate the same.
This is not always possible as it will be subject to your lender’s underwriting criteria, and generally only applies for fixed rate mortgages. However, it’s advisable to speak to your lender to see if they can offer an exception. Some lenders will allow you to port your mortgage even if you’re in negative equity.
Sale of Existing Property
Shouldering two mortgages is not easy, so ideally you want to sell your first property as close to buying your second as possible. Of course, this is a bit of a juggling act, and circumstances don’t always work out as planned, so…
- If you sell your home first:
Most experts agree that it is better to sell your first home before buying your second. This is the case of a number of reasons but namely that in doing so you can release cash from the first home and find it easier to secure your second mortgage.
However, this leaves you homeless, so you need to consider your options for the interim period. Can you stay with parents, or are the new owners happy to let you rent back off them for a short while?
- If you buy your second home first:
Taking on a second mortgage whilst still paying the first is not ideal nor viable for everybody. Anybody hoping to take this road will need to approach their lender to qualify for both loans. If they don’t qualify, the first home will need to be sold first.
If they do, however, then lenders may loosen up their standards to facilitate this arrangement, and there are options available to come up with the down payment, including:
- Tapping into your home equity
- Taking out a bridge loan
The Good News
The good news is that all the additional expenses, like solicitor’s fees, stamp duty, arrangement fees, disbursements and deposits can be deducted from the sale proceedings. Though they do still need to be paid, this minimises initial set up costs, leaving only the mortgage survey fee and solicitor searches to be paid at the outset.
With all the recent movement in the first time buyer market, it’s important that second steppers are able to move up the property ladder to retain fluidity and prevent a bottleneck. These tips are a good starting point for anybody looking to move up, but it’s always advisable to speak to a finance expert to assess your individual circumstance.
About the author:
This is written by Ali Raza on behalf of http://www.aldermore.co.uk/personal/mortgages/.
Ali has been working in the Banking Industry for several years and frequently writes about finance and SME Businesses.