In this newsletter, AWS Financial Services looks at how lenders are coping with increased demand from borrowers. And with the weather taking a turn for the worse, our thoughts are turning to sunnier climes as we look at buying a holiday home, investment property or ‘forever’ home in Portugal.
Do get in touch if we can help with any of your mortgage requirements.
Transactions taking longer as buyers take advantage of stamp duty holiday
In last month’s newsletter, we discussed how house-price data was so positive that there were growing fears that it could not be sustainable. And yet a month later, prices continue to rise while transaction numbers climb. Nationwide building society revealed that house prices rose at their fastest pace in four years with a 5 per cent uplift in values in the year to September. The lender put this down to ‘pent-up demand coming through, with decisions taken to move before lockdown now progressing’. The stamp duty holiday was playing a part ‘adding to the momentum by bringing purchases forward’. The number of property transactions in August was 15.6 per cent higher than the previous month, according to HMRC, while the Bank of England reported that mortgage approvals hit a 13-year high in August.
The housing market is undeniably busy but as is often the case, this is causing its own problems. Transactions are taking a lot longer than one would normally expect, as lenders, brokers, surveyors and solicitors all work flat out to get deals over the line. Indeed, it is said to take an average of 18 weeks to sell a home from the first day of marketing to completion, and that was last year, where there was nothing like this level of demand and activity. If buyers and investors wish to take advantage of the nine-month stamp duty holiday, which ends on 31 March and could potentially save them up to £15,000, they need to get a move on. This is particularly true as one of the months between now and then is December, which may as well be discounted given everyone will be concentrating on Christmas by then.
Service levels are still proving to be an issue for lenders. Inundated with business, staff working from home for the foreseeable future and worries about the future trajectory of house prices, all mean lenders are looking more closely at applications and being stricter when it comes to certain professions such as day-rate contractors, the self-employed and first time buyers. Applications can take a lot longer to process with lenders pulling deals and raising rates in order to maintain service levels. It is not ideal, particularly if you are in a chain where several other people are experiencing similar problems and the whole thing seems to be taking forever.
On the positive side, lenders continue to offer some excellent mortgage deals. The Bank of England voted to keep interest rates at 0.1 per cent this month but hinted that they could cut rates further and did not rule out negative interest rates if required. Evidence from other countries suggests that negative interest rates are useful in difficult economic times such as these because they cut firms’ borrowing costs and enable banks to cope with extra pressure on their finances. Unfortunately, it seems unlikely that banks will end up paying borrowers to borrow with many variable-rate mortgages having collars or floors below which the rate, and therefore payments, cannot fall. But it does mean that mortgage rates are unlikely to rise significantly any time soon, particularly for those with significant levels of equity in their homes or sizeable deposits.
First-time buyers continue to struggle with a lack of availability of high loan-to-value mortgages. Those lenders which do offer 90 per cent deals, are pulling them at extremely short notice as they are inundated with business. Contractors and the self-employed are also finding lenders looking at mortgage applications more carefully than in the past, concerned about future income because of the uncertain economic outlook. Getting a mortgage may not be impossible if you are in this position but not all lenders will lend to borrowers in your situation so taking advice is more critical than ever.
A whole-of-market broker such as AWS Financial Services can help find a solution if you are looking for a mortgage. We are well versed in accessing competitive deals for day-rate contractors and the self-employed, so do get in touch for more information.