According to an Office of National Statistics report, today’s 20- to 34-year-olds are more likely to be sharing a home with their parents than at any point this century. In 2000, 2.4 million lived with their parents. The latest figure from 2015 stands at 3.3 million.
It is not an altogether surprising statistic. Higher prices, caused in part by Britain’s housing stock shortage, have led to many younger people identifying with the term “generation rent”.
The tough challenges facing first-time buyers have generated a certain level of awareness around their plight. Practical and insightful mortgage advice is valued more than ever by those looking to get a first hold on the property ladder.
Second-time buyers, however, face their own tricky prospect: moving to what might be one’s home for the next 10 to 20 years – or longer.
“In the UK, we’ve basically got to fit four generations into a housing stock that was built for three generations,” says property expert Kate Faulkner. “When I meet people in their 20s and 30s and tell them it took me about five or six properties until I got to the one I really wanted, they look at me in horror.”
Given that such luxury is rarely afforded to second-time buyers these days, it’s vital they make sure their next move is the right one.
How do you know you are ready to make your next move?
Given the weight of the decision, a range of factors needs to be taken into consideration. First and foremost, you need to be in a comfortable financial position to do so.
“If you are going up the ladder, you are going up in price,” says Richard Donnell, director of research and insight at Hometrack. “You’re either going to have some savings – through equity or inheritance [and personal nest eggs, in some cases] – or you’ll be borrowing off your family. Or you’ll need to borrow it in a mortgage.”
According to Tony Fullbrook, head of purchase, mortgages, at Barclays, those able to put down as large a deposit as possible on their next home will reap the benefits of lower mortgage payments in the long run.
“The bigger the deposit, the smaller the mortgage,” he explains. “Also, the mortgage interest rates will be lower if you borrow a smaller proportion of the new property value [often referred to as the loan-to value ratio].
“If you need to build up a bigger deposit, consider how much you can afford to save and whether it is more effective to overpay your mortgage – which will give you more equity when you sell – or whether to save separately in a savings account.”
What can you learn: If you’re going up in price, ensure you can absorb all the extra costs. Try to save as big a deposit as possible, to cut down on the size of your mortgage.
Will your next home be more expensive? What’s the cost of moving?
While some navigating their way up the property ladder may expect to pay a higher price for their next home, as Donnell says, this is, by no means, cast-iron convention.
Relocation can often mean getting a bigger property for less money. You only have to look at the current exodus of Londoners from the capital, due to escalating house prices. Net departures to cheaper UK cities, such as Manchester and Birmingham, have risen by more than 80% over the past five years, according to property agents Savills.
It also boils down to timing, says Kate Faulkner, who advises next-time buyers to take advantage of today’s historically low interest rates.
“If you’re looking at the long-term, it’s about when is the best time to move – which is pretty much now,” she says. “Interest rates can’t go any lower than they are currently.”
For Neal Hudson, director at Residential Analysts, today’s next-time buyers need to be setting their sights as high as possible, in order to make the next move financially worthwhile in the long run.
This means looking to move to a property that is “maybe 40-50% more expensive than the one you currently live in” – if one has the financial leeway to make such a jump.
“There is little point in moving if all you can afford is a property that is 10% more expensive than your current home – especially when you add in all the costs of moving,” he explains.
Attendant costs, says Hudson, can include everything from stamp duty and hiring a removals company to surveyor and solicitor fees. It’s also worth having some sort of contingency fund for unexpected costs, such as a boiler breaking down or electrical faults.
“You need to be making a sufficient jump, which isn’t always easy. While your house growth might be making equity, and it might be leveraged because you have a mortgage, you need to take into account that the property you want to move to will be going up by the same amount – especially if it’s in the same area.”
What can you learn: While you may expect to pay more for your next home, it is by no means a golden rule. Regardless of house price, though, be prepared to fork out on stamp duty, legal fees and a removal van, at the very least.
How to save while paying off an existing mortgage
Buyers – particularly those not fortunate enough to have the bank of mum and dad at their disposal – need to save scrupulously and incrementally in order to get their hands on a next-home deposit.
But how does one set about squirrelling away money for a new property while still paying off an existing mortgage?
“It’s important to think about the property prices you are looking at, how much mortgage you can afford and, therefore, what deposit you are going to need from equity on your current home and from other resources – usually savings,” says Fullbrook, who advocates using an online mortgage calculator to get a clearer view of what is in the bounds of affordability.
“You want to be on as low a rate as possible, but you want to be maximising your repayments,” adds Hudson.
“That means paying off the capital over as short a time as possible in order to get your savings down, and also maximising any of your other savings.”
What can you learn: Try to be as farsighted as possible. If you can increase your mortgage repayments on your current home, all the better for when the time comes to move.
What are you looking for from your next place?
There is no single paradigm of what defines a dream home. More space, or a garden, is a common must for young families looking to upgrade.
External factors beyond bricks and mortar count, too. Good schools in the area often swing a decision. You may want to be closer to your parents or to work.
“People need to consider the risk-reward return of their next property,” says Donnell. “This is often linked to where you work and how you commute. That means considering transport links in the new area, travel costs, and the impact on family life. These things aren’t taken lightly.”
Fullbrook agrees. Ongoing costs, such as rail season tickets – reported to cost up to 14% of commuters’ net pay – need to be considered from the off.
“Lenders will usually ask you about future changes to your circumstances when you apply for a mortgage, but it’s best to think ahead on this to avoid struggling with finances once you have moved,” he says.
“If you can reduce or repay credit commitments with higher interest rates, such as store card or credit card balances, this will help you to have more disposable income after you have moved and as you settle in and establish a new financial rhythm in a new setting.”
What can you learn: You might be moving away to start a family – or simply for a change of scenery – but it’s always best to weigh up the rewards against the risks, and to consider how future changes to your circumstances may impact your finances.
How to navigate the buying chain
Second-stepping means being part of a buying chain – the duration of which can extend to several months.
It takes just one party far down the chain to miss a call or neglect to sign a document to derail the speed of a purchase. Clear and constant communications between all parties – including estate agents, legal firms, surveyors and mortgage lenders – is a must if progress is to be made.
Conducting some research can also go some way towards avoiding a long chain. When it comes to selling, as a rule of a thumb, it is preferable to choose a buyer who isn’t in a chain themselves, such as a first-time buyer.
For buyers with a little more luxury of choice, it can be worthwhile looking for properties that don’t have an upward chain – such as new-builds or empty homes.
The importance of ensuring your own home is in order should not be underestimated either. A thorough tidy-up before a viewing and a fresh lick of a paint here and there could make all the difference in selling your home faster.
It’s also worth exploring possible conversions that might add value to your property as you look to sell it. Adapting the garage or loft into an extra room might require planning permission – and disposable income – but it could be the deciding factor for a large family, in need of extra space, putting in an offer.
Whichever way you choose to play it, patience remains the ultimate virtue for the next-time buyer.
What can you learn: The last thing you want to find yourself in is an interminable buying chain. Do your research beforehand and don’t forget to get your own property in order.
Barclays can help support you on your home owning journey. Visit here to find out how much you could borrow on your next mortgage
