Trading up easier as property prices plummet

Trading up easier as property prices plummet

The cost of trading up from the bottom rung of the housing ladder has reached its lowest level in five years, research showed today – with two-bedroom homes taking the biggest hit from falling house prices.

Estate agency website Propertyfinder.com said the price difference between a one-bedroom home and a two-bedroom property had fallen from £41,500 in December 2007 to £31,000 at the end of last year.

Homes of all sizes have declined in value over the past 12 months, Propertyfinder said, but while the average price of a one-bedroom home listed on the website was down by just under £11,000 to £129,874, the average price of a two-bedroom home dropped by almost double that figure – falling £21,750 to £160,596.

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Propertyfinder said the two-bedroom market had suffered because many new-build homes fell into this bracket. Sales of these properties have hit a wall in recent months as buy-to-let investors have withdrawn from the market and lenders have become increasingly nervous about offering mortgages.

While the bottom end of the housing market has been hard hit by the fall out from the credit crunch – which has seen lenders raise minimum deposit sizes and cutback on loans to all but the safest borrowers – those first-time buyers still able to raise the money to enter the market have created some demand for one-bedroom homes.

The figures show it has also become cheaper to trade up to a three-bedroom property, with the price differential between that and a two-bedroom home dropping from £66,264 in 2007 to £58,436 in December 2008.

Because small homes have seen the largest price falls, the cost of trading up to a four-bedroom property has increased, even though those homes have also lost value.

By the end of last year, the average price of a four-bedroom home had dropped by £20,000 to £370,267, Propertyfinder said, while the average price of a three-bedroom home was down by almost £30,000 to £219,032.

Nicholas Leeming, director of propertyfinder.com, said: "Young families at the bottom end of the ladder will now find it easier in cash terms to trade up than they have for quite some time, and as mortgage availability frees up towards the second half of 2009 more people will be able to take advantage of a market which now offers good value.

"People are coming to terms with economic gloom and realising that life goes on – some people still need to move, particularly those who need more space for growing families – and this is actually the perfect time for them to trade up."

David Smith, head of estate agency firm Dreweatt Neate, agreed it was a good time for those trading up to get good value for money, but said there were other factors that could prevent potential sellers moving on.

"Who are the first-time sellers going to sell to? First-time buyers will come back into the marketplace but at the moment there are a lot of restrictions stopping them getting a mortgage.

"Also, why would first-time buyers buy a one-bedroom property when they could buy a two-bedroom home for themselves?"

Smith said the main beneficiaries of the fall in two-bedroom house prices would be buy-to-let investors who could get £50 to £100 extra a month buy investing in a property with a second rentable room.

guardian.co.uk © Guardian News and Media 2009