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A Word on the Mortgage Market – June 2021

A Word on the Mortgage Market

Hello and a (thankfully) warm welcome to the latest edition of A word on the mortgage market. We hope you remain safe and well.

In this edition, we’re covering four different topics. First up we’re going to take a look at whether Coronavirus has changed the mortgage market forever, and what that means for you and your home loan. We’ll then briefly look at what rates are currently available. With a staggering £242 billion worth of mortgages due for renewal this year, we’ll then look at whether it’s better to remortgage or take a product transfer. Finally, we’re going to cover house prices and what we think the future looks like, particularly as the Stamp Duty holiday is about to come to an end.

We hope you find it informative and useful. As ever, should you wish to discuss anything we talk about, or indeed any other mortgage related issues, then please get in touch with your adviser, whose details you can find a little further below.

CORONAVIRUS
HAS IT CHANGED THE MARKET FOREVER?

Over the last 15 months many industries have had to adapt and change the way they work, the way they organise their staff, how they assess risk and much, much more. And the mortgage industry is no different.

The initial challenges were of a practical nature; branch closures and location and safety of staff being top of the list. However, as we moved into April 2020, it was clear that an end to Lockdown 1 was a long way off and mortgage lenders, like all financial institutions, needed to find a way to operate as normally as possible.

Clearly IT played a massive part and, by early April, most lenders had put their disaster recovery plans into action, with 1000’s of employees working from home, both in the UK and at their processing centres around the world.

Adapting to the economic conditions
Yet the practicalities of servicing clients were only one relatively small part of the issue. The bigger picture was how to adapt to the new economic conditions. What to do when assessing income and affordability? How to deal with this new source of income called “furlough”, a word most of us had to look up in a dictionary on March 23rd. How to grant mortgages to the self-employed, many of whom would have long periods of time with zero income. And how could surveyors inspect property for valuation?

With some creativity, and a lot of criteria changes, most lenders quickly adapted to a new way of mortgage underwriting. Auto valuations became the norm, most lenders accepted full furlough pay, most lenders took a view on self employed accounts and looked at historical financial numbers. And, although delays were often lengthy, by the end of Summer 2020 most lenders were operating under the new normal.

How does it look today?
Fast forward to today and as we race towards an end to the pandemic the landscape is somewhat different. We are close to finding out the true extent of what the last year has done to the UK and indeed the world economy. There is uncertainty as to what sections of our economy will recover and how quickly. What will the end of government grants to the self employed and furlough to the employed mean? All these issues will be front of mind for lenders, and many have already changed the way they view and assess income.

Some will still accept full furlough payments; others restrict the percentage of the payment, and some will not take it into account at all. All differ on how they treat bonuses and commission. On self-employed borrowers many lenders have cut the loan to value they will lend or simply not lend at all. Some will require 12 months bank statements, others just 6 months.

What the future holds is anyone’s guess. But what is evident is that the mortgage process will take many more months, at least until well into 2022, to return to some degree of normality. As ever, we are here to help you through it all. So, whether you’re buying, remortgaging or considering a product transfer, please make sure you contact you adviser in good time.

IT HAS BEGUN
THE MORTGAGE RATE WAR

Whilst you are unlikely to see lenders physically enter into battle (that would be quite something) the rate war has already started with rates as low as 0.95% for a 2 year fixed and 1.17% for a 5 year fixed. Clearly there are fees attached and you have to have a sizable deposit, however, rates like this have not been seen for a number of years and will have a limited shelf life. What is clear is that lenders are looking for mortgage business as the Covid pandemic recedes. Good news for borrowers.

These rates are clearly not designed for the first time buyer market. However, lenders are also taking advantage of the government’s new mortgage guarantee scheme, with a raft of 95% products already on the market from all the major lenders – including Nat West and Halifax. The scheme has also encouraged other lenders, who have decided not to pay the government for the guarantee, to release their own 95% LTV mortgages. This has already led to falls in interest rates in the 95% LTV arena.

As always speak to your adviser for the latest best buy rates.

WHAT NEXT FOR HOUSE PRICES

If you asked any economist or housing expert what influences house prices in the UK, you will get a variety of replies. The stock answers in the recent past include consumer confidence, supply and demand, interest rates, unemployment, regional variations and, more recently, affordability.

However, since the 23rd March 2020, a few more reasons have been added to the list. The effects of lockdown; can property be sold by virtual tours; can property valuations be done remotely; can lenders and solicitors operate in the same way; and, of course, what will the overall Covid effect be?

And, of course, there’s a location perspective now. Will buyers desert the cities and opt to buy further afield and benefit from gardens and the countryside on their doorstep. And will the working from home revolution become the norm?

Many of these questions will remain unanswered for months, if not years, and if nothing else it gives experts something to write and debate on the UK’s favourite topic now that Brexit is ‘done’ and Covid appears to be getting under control!

The housing market remains critical to the economy
There is no doubt that the UK housing market remains critical to the overall economy, so much so that the government moved swiftly to introduce, and then extend, the Stamp Duty holiday as soon as it was clear that Covid was more than an aggressive form of flu. The introduction and extension of the furlough scheme to avoid mass unemployment was also a measure to avoid substantial house price falls which would devastate the wider economy. And finally, the government guarantee to the UK’s major lenders, in place until at least 2023, looks like a belt and braces measure to ensure first time buyers remain active.

These measures have largely worked and rather than going into reverse, the housing market has enjoyed a boom since lockdown 1, with house prices up more than 10% year-on-year, transactions doubling in March 2021 versus March 2020 and, more recently, all the major indexes showing price rises in the last couple of months. Job done? Not quite.

What does the end of the Stamp Duty holiday mean?
The Stamp Duty holiday is being phased out between the end of June and September, and furlough is due to end in September, so logic would say we are at least due a pause in the house buying frenzy. Not so say the experts, who point to several positives.

  • Supply and demand. There are still more buyers than properties for sale.
  • UK bounce back. The economy is set to boom with pent up demand in the retail and hospitality sector.
  • Interest rates. Although UK inflation has risen in the last couple of months, it’s widely thought that this is temporary and rates will not need to rise.
  • Lender appetite. Although demand remains high, we are still seeing lenders cutting rates across all product ranges, making mortgages more and more attractive whether buying or remortgaging.
  • Government guarantee. They are committed to the lender guarantee scheme, until at least the end of 2023, and who’s to say more intervention isn’t on the horizon.

Experts predict that these factors will result in house prices not falling, although the rapid growth seen over the last 12 months will slow. Leading estate agents Savills predicted a flat market at the beginning of the year, but now predict a 4% rise for the remainder of 2021.
No one has been bold enough to look further ahead into 2022. When they do, you’ll be the first to know.