Mortgage market gets back to business

Town house with red and blue door

With surveyors clearing the backlog of valuations delayed by Covid-19 and lenders mostly on top of processing payment ‘holidays’, the mortgage market is starting to resume some normality. However, there are a few areas where things remain tricky. Those requiring high loan-to-value (LTV) mortgages, for example, are struggling to find them. Some lenders started offering 90 per cent LTV deals again, only to pull them once they were inundated with demand. The problem is that none of the big lenders apart from HSBC are offering 90 per cent LTV deals so choice is limited and rates have increased. First-time buyers, in particular, have been hit hard and unless they have some financial assistance in the form of a deposit from the Bank of Mum and Dad, getting on the housing ladder remains a challenge.

First-time buyers may be relieved to hear that property values fell in June. Annual prices dropped by 0.1 per cent compared with the same month last year, the first fall in eight years, according to Nationwide building society. But will it be enough to enable them to get on the housing ladder? It is unsurprising that the brakes have been put on house-price growth given the pandemic and ensuring lockdown which has brought the housing market to a standstill. Nationwide reports that average prices in London are just 3 per cent below all-time highs recorded in Q1 2017 and 55 per cent above their 2007 levels. This suggests first-time buyers still have their work cut out trying to afford to buy in London. Meanwhile, the average UK house price remains 19 per cent higher than its 2007 peak, so even if buyers did look outside the capital, saving up a big-enough deposit is still a difficult proposition.

Mortgage activity also saw a dramatic slowdown, according to Nationwide, with 9,300 approvals for house purchase in May, down from 73,700 in February and a massive 86 per cent lower than in May 2019. This underlines the severity of the impact of coronavirus. Government support in the form of Boris Johnson’s ‘build, build, build’ programme, as well as other economic measures – possibly even a cut in stamp duty – will be essential to give the market a boost in the short to medium-term.

There is some good news, with borrowing remaining extremely cheap and interest rates unlikely to rise anytime soon. Two- and five-year fixed-rate mortgages are still available from sub-1.5 per cent for those with the biggest deposits or similar levels of equity in their home. Such borrowers remain extremely desirable to lenders who are competing for business and are keen to lend.

Mortgage payment holidays have saved many people who have been hit financially by Covid-19, particularly those who did not benefit from the furlough scheme, and giving some much-needed breathing space. With one in six borrowers deferring their mortgage payments, the scheme has been popular and many are now coming to the end of their three-month deferral so will need to decide whether to extend it. However, borrowers should think carefully about doing so if they don’t absolutely have to as the regulator has said that while it will not affect your credit record, it could impact future lending decisions. Indeed, we are hearing that some borrowers who took payment holidays are now seeing their applications for new mortgages declined as lenders take a whole range of information into account when deciding how much you can borrow.

As always, it is important that borrowers seek advice when applying for a mortgage. It makes sense to ask a whole-of-market broker for advice – at AWS Financial Services, we can guide you through the process from start to finish and ensure you get the right funding for your particular circumstances.

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