Housing affordability for Second Steppers – calculated as the average price of a typical Second Stepper home, less their current equity position as a ratio of average earnings – stood at 4.2 times gross annual average earnings in August 2013.
On this measure, affordability is much worse than a decade ago with the ratio standing at 2.9 in 2003. There has, however, been an improvement over the past year with the ratio at 5.0 in August 2012. This recent improvement partly reflects the fact that the current typical Second Stepper bought their first home after the peak of the recent housing market cycle in 2008 whereas a year ago the typical Second Stepper had purchased in 2007 at the peak of the housing market cycle.
Rise in equity levels improves second stepper housing affordability
The typical potential Second Stepper in August 2013 bought their first home in 2008. Such a homeowner is, on average, estimated to have an equity level of £31,174 – equivalent to 18 per cent of the average price for a semi-detached house – a typical Second Stepper home – of £168,771. This is a marked improvement on a year earlier when the typical Second Stepper had negative equity of £2,321.
The level of equity of a typical potential Second Stepper is now at its highest since 2008.
Despite this improvement, equity levels for Second Steppers remain low compared with ten years ago when the typical Second Stepper was able to fund close to half (45 per cent) of the purchase cost of their next home through equity built up in their first property.
In addition, with the average cost of moving estimated at close to £9,000, the increase in equity over the past year will not be sufficient for many potential second steppers to finance a move to their next home.
North-South divide in second stepper housing affordability
There is considerable variation in housing affordability between regions, with northern regions more affordable than southern regions for Second Steppers. This is largely a reflection of the lower prices for Second Stepper properties in the north. The West Midlands and East Midlands (both 3.1) are the most affordable regions for those in their first home looking to take their next step on the property ladder. While London (5.7), South West (4.5) and South East (4.4) are the least affordable.
