HOMEowners looking to move up the property ladder and buy their next home are facing the toughest conditions for more than a quarter of a century.
Second-time buyers are now finding it harder to purchase a home than first-time buyers due to falling prices in first homes.
Home affordability for second-stage movers in Scotland – calculated as the average price of a typical second-stepper home less their current equity position as a ratio of average earnings – reached 4.3 times gross annual earnings in October 2011, the highest ratio since records began in 1987. The first-time buyer ratio reached just 3.5.
A report by Bank of Scotland also shows that the second-stage ratio has risen significantly over the past decade – it was 2.9 in 2001 – and is well above the long-term average of 3.2.
However, Scotland remains the third most affordable part of the UK for property owners looking to make the next move.
Maurice Allan, of estate agents Strutt & Parker, said: "While it is clearly difficult for those looking to move from first to second homes, particularly if they bought their first homes at the height of the market, it is encouraging to note that out of the 12 regions listed in the Bank of Scotland report, Scotland is the third most affordable.
"Ironically, while the affordability factor has become less favourable, it is also worth bearing in mind that if you are looking to move up the housing ladder then it is easier to do so when the market is less bullish.
"With bank lending being more restricted, the key question is whether the purchasers can raise the necessary deposit. If so, they will find that moving up the property ladder is more viable than it was at the peak of the market in 2007."
Bill Cullens, of Clyde Property, said that more first and second-time buyers are beginning to adjust to the market and accept lower prices and higher mortgage deposits.
He said: "At the peak of the market, first-time buyers could borrow up to 125% of their mortgage from some lenders and now it's just 75%. That's a big reduction, so people who are selling are having to take a lot less and then it's a bigger jump for them to go into the middle range.
"However, I don't think it's all bad news. Most people have seen a reduction in the price of their property and most of them have adjusted to that. People have known about the state of the market for three years now and have saved and re-adjusted.
"The bottom of the market will head up and homeowners can start to look forward to getting faster sales and possibly, as demand starts to increase, slightly higher prices."
The average price paid by a first-time buyer in Scotland has fallen by 14% since the peak of the market in 2007.
Research has found that first-time buyers intend to stay in their first home for an average of four years, meaning that many second-time buyers in 2011 will have bought their home at the peak of the market.
These who bought homes in Scotland in 2007 are, on average, estimated to be in a positive equity position of just £4034.
Nitesh Patel, housing economist at Bank of Scotland, said: "The deterioration in home affordability in Scotland over the past few years has been significant among those looking to take their second step on the property ladder.
"This reflects the impact of the decline in house prices since 2007 on the amount of equity those who bought for the first time at the peak of the market have in their homes. As a result, many are faced with a tough challenge to make their next move on the property ladder."
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