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360,000 first time buyers trapped by falling house prices

Tuesday, 15 November 2011 5:22 PM

Some 360,000 first time buyers who bought in 2007 are likely to be trapped by falling house prices says HSBC.

House prices for first time buyers have plummeted by seven per cent on average since 2007, potentially leaving many young people stuck on the first rung of the property ladder.

Negative equity might even affect first time buyers if their property is now worth less than the cost of the mortgage they took out to buy it.

Pete Dockar, head of mortgages at HSBC, said: "These findings highlight the need to save or pay down an existing mortgage in order to fund that second step on the property ladder; first-time buyers can no longer rely on rising house prices to provide them with the deposit needed for their second purchase.

An average first time buyer with a 10 per cent deposit would have started with £16,000 equity, but much of that will now have been eroded by a £11,000 fall in property value, leaving them just £5,000 of their original deposit.

If a first time buyer has been making capital repayments on the mortgage over the past four years they will have paid off around £11,000, leaving them almost exactly where they started in terms of equity in their property.

HSBC's analysis shows that in order to move up the property ladder second time buyers need to raise £27,000.

This is to cover the cost of selling their first home, getting a 10 per cent deposit together and paying stamp duty.

Dockar continued: "Making overpayments on the mortgage is one way that these movers can help build up their finances to take the next step up the property ladder. This increases the equity in their first home, and bolsters the deposit available to them for their onward move."

London is the only region of the UK to buck the trend of falling first time buyer house prices, with properties rising in value by 1.7 per cent.

Second time buyers in the South-East face the biggest moving gap on the UK mainland due to high average property prices in the region pushing up the stamp duty bill.

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