A stagnant housing market and a lack of first time buyers has forced thousands of UK properties into negative equity as homeowners looking to purchase their second home become trapped on the first rung of the housing ladder.
Houses bought before the 2007/08 financial crisis can be very vulnerable to the effects of negative equity, and the Lloyds TSB annual Second Shoppers report, has revealed that 25% of buyers looking to move into their second property are in fact in negative equity.
It is widely believed that the lack of first time buyers coming into the market with fresh offers has stagnated any future sales. What is more damaging however is that many of the houses were purchased with a loan to value (LTV) of more than 100%. When prices fall, the owners are left with debts that exceed the total value of their property.
Even those who own a property that is not in negative equity, are also struggling to move up the ladder. The second shoppers report also found that 61% of those who are looking to their next home were unable to do so. This is either due to the effects of negative equity, the inability to attract first time buyers, the shortage of offers, or offers coming in under the asking price.
The problems can be felt across the UK with six out of ten regions being subject to a stagnant housing market. A healthy market is usually one in which 40% of those eligible for their first property are looking to move. A study from the property website Rightmove however, found that the figures are half that, at 20%.
First time buyers are crucial to those further up the property ladder, and government incentives to fuel the housing market have seeked to stimulate this market, often focusing upon new builds. This has the combined effect of not only providing first time buyers with affordable housing, but also helps the construction industry.
It is hoped that in the soon to be announced budget, the government will extend measures to support the NewBuy scheme by including existing properties. This will allow many first time buyers to receive government guaranteed loans and take up 95% mortgages on their first home. This injection of first time buyers will then hopefully allow many more to sell and move up.
Rightmove says that although second time buyers make up 29% of the market, their needs are often ignored by the government and developers. "Second-steppers are the ugly duckling of the housing market," says Miles Shipside.
"Overlooked for government incentives, struggling to protect their equity if they bought near the peak, and now crammed into a home that is too small. It appears many second-steppers have had to shelve their family planning and home-moving ambitions since the onset of the credit-crunch over five years ago."
Aside from moving and losing money on a house, some of the measures that many are turning to include staying and developing the property. Alternatively, it is also possible to use the property as a form of revenue by letting it out, although this requires permission from your mortgage provider and may incur extra charges and interest on the mortgage.