Record Price Gap Between First and Second Homes

The Cedar Crest Team
17 hours ago
3 min read

Why moving up the property ladder now requires more equity

Record Price Gap Between First and Second Homes

THE GAP BETWEEN the cost of a typical first-time buyer home and a mid-market second-stepper property has reached its highest level on record. According to a recent analysis from the property platform Rightmove, those aiming to upgrade are facing unprecedented cost increases to secure their next home.

In March this year, the average asking price for a property with up to two bedrooms was £226,955. Moving to a typical three- or four-bedroom second-stepper home raises the average asking price to £345,857. This signifies a substantial 52% increase and marks the widest gap

Funding Your Next Move

For borrowers aiming to put down a 20% deposit, this price jump requires a significant accumulation of wealth. Buying a starter home at the current average would require a deposit of £45,391, but securing a second-stepper property would require a deposit of £69,171.

This means home movers need to build an extra £23,780 in equity, which must come from dedicated savings, overpayments on their current mortgage, or natural house price growth. Additionally, buyers must also demonstrate their affordability to qualify for a significantly larger loan.

Moving Up the Ladder

The challenge of moving up the property ladder varies significantly depending on

where you live in the UK. In the South East, the average asking price for a starter home

is £286,748, compared with £460,781 for a larger property, representing a steep 61%

increase. London is close behind, with a 60% gap between property types.

Conversely, moving up the ladder seems much more attainable in Yorkshire and The Humber, where a first-time buyer’s home averages £182,029 and a second-stepper's home costs £251,885, resulting in a narrower 38% difference. Wales also provides a relatively accessible transition, with a 40% gap between typical first and second homes.

“Buyers might also need to consider taking smaller, more gradual steps up the housing ladder instead of making a single, large jump, or look for more affordable locations to make their move feasible.”

Flat Versus House Divide

The findings also highlight a growing disparity between flats and houses, with weaker price growth for flats playing a significant role in the rising cost of moving up the property ladder. Currently, the gap between the average asking price of a flat and a house of any size stands at 26%. The average asking price for a flat is £301,338, compared to £379,526 for a house. Over the past decade, flats have seen their average asking price increase by just 8%, while houses have experienced a much steeper rise of 34%, according to the analysis.

This has caused the price gap between an average flat and a house to widen substantially, increasing from £24,010 in early 2020 to £78,198 now. Flats, which constitute a large share of first-time buyer homes, especially in markets like London, have seen noticeably slower price growth, while houses have surged ahead, further widening the divide. This trend highlights

the difficulties faced by those looking to move from a flat to a house, as the financial

leap needed continues to grow.

Strategies for Home Movers

Inevitably, trading up involves borrowing more money. Homeowners usually use the equity they’ve built since purchasing their first home to fund a larger deposit, which in turn allows them to secure lower mortgage rates. However, if equity growth has been limited by sluggish flat prices, movers may need alternative strategies. This could involve reducing their current mortgage balance through overpayments or significantly increasing their deposit using personal savings.

Buyers might also need to consider taking smaller, more gradual steps up the housing ladder instead of making a single, large jump, or looking for more affordable locations to make their move feasible. Fortunately, if buyers face the prospect of moving up the ladder at higher loan-to-value ratios, lenders have various options to support this transition, which have been enhanced by recent changes to affordability rules by financial regulators.