Many homeowners are trapped in their first homes

Despite many second time buyers looking for the best mortgage rates, several will be unable to move, particularly if they bought their first house in 2007.

New research by HSBC revealed that some 360,000 homeowners are trapped in their first homes after having their equity eroded by a seven per cent fall in the value of first time properties since then.

Being able to afford to get the best mortgage rates on a second home will be impossible for many second time buyers if they have not been saving in the meantime, HSBC suggested.

It revealed that the average first time buyer in 2007 would have put down a ten per cent deposit of £16,000, which has now been eroded by a seven per cent fall in property prices, leaving them with just £5,000 of their original deposit.

If the homeowners had been paying capital off their mortgage they should by now have paid some £11,000, giving them as much money as when they started and preventing them from moving up the ladder, particularly when associated costs are included.

"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," said Pete Dockar, head of mortgages at HSBC.

He suggested that a way to counter that is to make overpayments on mortgages, to build up capital and increase the deposit available during the next house move.

However, additional research by HSBC has also revealed that housing a second child could cost as much as £60,000, as most parents move to accommodate a new child and that is the average difference in price between the average two and three bedroom house.

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2011-11-15 12:29:59 © Moneyextra.com