Soaring house prices leave homeowners stranded

Second-steppers say there’s no way they can afford the move they need

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A third of people who need to move up the property ladder in the next five years are going to find themselves stuck in their current property, according to a new report. The rapid rises in house prices, coupled with the incredible cost of moving, and problems getting mortgages, mean that 34% of people are worried that their next property will be out of reach.

The study, by Moneysupermarket, found that by far the most common reason people gave for being unable to move was rising house prices. Figures from Haart estate agents today put the average price of a property in the UK at £212,495 - up 5.6% from this time last year.

However, the average price obscures some of the more striking regional findings. In London, for example, the average house costs £536,286 and has risen 16.7% in the past year.

Rising prices

As prices rise, the gap between different bands of the property market grow, so that suddenly you need to save or borrow far more in order to fund an extra bedroom, bigger garden, or somewhere closer to better schools.

Research from Lloyds Bank at the end of last year found that so-called Second Steppers need to find an extra £58,400 to fund the move - that's twice as much as the average first-time buyer deposit. It's also £15,000 more than they needed a year earlier - and rampant house price rises since then will have pushed this figure even higher.

At the same time, the price of moving is shooting up. There are surveyors, removal companies and lawyers to pay - which can easily burn thousands of pounds. There's also stamp duty - which is rising along with house prices. On average people expect to have to save over £10,500 before they will be able to move, but in many cases this will barely be enough to cover the tax.

Mortgage problems

The researchers added that people aged between 34 and 54 are particularly likely to struggle - as 41% of them say they cannot afford to move. Kevin Mountford, head of banking at MoneySuperMarket said this was due in a large part to the mortgage market.

He explained: "There was a time when those in the 35 to 54 age group would have been looking to downsize, but now this is the age group where people are starting a family in some cases or still housing grown up children who are struggling to find their own way. Although they might have the earning potential to make that next step there is the constraint of mortgage term that comes with their age."

"Lenders will tend to fix the term of repayment to retirement age, so for those movers aged over 34, the repayments on increased value mortgages will be much higher as they're paying it back over a shorter time. For example a £250,000 mortgage on the leading two year fixed at 1.05 per cent could be taken out by a 30 year old with a 30 year term and the monthly repayments would be £810. However for someone aged 45, the same mortgage over a 20 year term would have monthly repayments of £1,155, that's £345 extra to find each month to make that next move."

What can you do?

Mountford says it's essential to draw up a budget before you start, and work out how you can afford to save for the move - and how much you will need. He said there is still hope for homebuyers, explaining: "The good news for those looking to move is that there's a great deal of competition in the mortgage market at the moment."

"We've seen a huge drop in fixed mortgage rates over the past few years, some with manageable fees. Perks such as free legal costs and free valuations on properties are also offered by some lenders in order to get customers through their doors. As such, there really hasn't been a better time to get a mortgage."

Be realistic

If the move is entirely beyond your finances, however, it's important to be realistic. There's no point taking on a bigger mortgage than you can afford, and over-stretching your finances.

While a house move might be ideal, you may find alternative approaches that address your house's shortcomings at a lower cost. Home improvements, for example, may well prove a cost effective way of getting more house for your money.

You can improve your current home so that it offers the extra space you need - and consider whether you need to move up into the loft, out into the garden, or reconfigure the space inside your home so it suits your family better.

Alternatively, if it's the location you need to change, you can take on a property that needs a great deal of work, and get something more affordable to improve in a new location.

Because while your priority right now may be to move on and start afresh; if it comes with an unmanageable mortgage, it's not going to be the right move for anyone.

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