The Time To Buy A Bigger Property Is Now

by Rachel Wait on 28 January 2009  |  81 comments
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If you're thinking about trading up to a home with two or three bedrooms, things are looking good......

I bought my first property about a year and a half ago. I admit it wasn't the wisest time to buy -- in fact, it was quite possibly the worst -- but at least I've made my first step onto the property ladder.

My flat isn't exactly what you would call spacious -- it only has one bedroom for a start -- so I have to confess that I do occasionally dream of moving to a bigger place.

So that's why the latest research from propertyfinder.com has made me smile. According to the research, now is a great time to trade up to a larger property! In fact, it's now easier to make the leap from a one bedroom house to a two bedroom house than at any other time in the past five years!

So if I did decide to trade up to a two bedroom home, I would now only have to find an extra £31,000 compared to the £41,500 I would have needed a year ago.

How come?

Well, it's all to do with the recent lack of mortgage availability which has impacted the lower end of the market in particular. Homeowners at the lower end of the market tend to have smaller amounts of equity in their homes and, following tighter lending restrictions, it's become harder to gain access to finance in order to move.

This means activity at the lower end of the market has become stagnant, fewer people have moved home, and property prices have plunged.

According to propertyfinder.com, the value of two bedroom homes has fallen fastest, with the average price dropping by around 12%* between 2007 and 2008, to £160,596. Meanwhile the average value of a one bedroom home only fell by 8% to £129,874.

The past year has also seen the average price of a three bedroom property drop by around 12%* to £219,032. So if you wanted to trade up from a two bedroom home, you'd only have to find an extra £58,436 compared to the £66,264 you would have needed a year ago.

Further up the ladder

Unfortunately this trading up theory doesn't work all the way up the property ladder. Despite falling house prices, the amount you'd have to pay for a fourth bedroom has actually increased over the past 12 months by £9,502.

This is because the average price of a four bedroom home has held up pretty well over the past year compared to the rest of the market. Compared to the 12% fall seen for three bed homes, the average value of a four bed home has dropped just 5% to £370,276. This is because those homeowners higher up the property ladder generally have larger amounts of equity in their homes and can move more easily.

So this means the price gap between a three bed and a four bed home has significantly widened and it's now more expensive to trade up. You can see this is the chart below.

Source: Propertyfinder.com

Source: Propertyfinder.com

What this means

For anyone hoping to trade up to a two bedroom or three bedroom property over the coming months, it should now be far easier and cheaper to do so.

That said, if house prices fall even further this year, it could become even cheaper to trade up to a larger property. So you may reap the benefits from holding off a little longer if you can.

Best mortgage deals

If you are looking to move home and need to remortgage, one of the best fixed rate deals around is Bank of Scotland's two year mortgage at 3.79%. It comes with a £799 fee and to qualify, you'll need an equity stake of at least 25%.

Alternatively, if you'd prefer a tracker, First Direct is offering a rate of 3.39%. This comes with a £799 fee, and you'll need a deposit of 20%.

If neither of these tickles your fancy, you can compare other great deals through our mortgage service.

*Percentages are rounded up to nearest whole number. The average price of a two bed home fell slightly more than that for a three bed home (11.92% versus 11.89%).

More:  In Search Of The 0% Mortgage | Why House Prices Will Fall This Year