Mortgages in a Covid World
How has the Mortgage market been affected by the Covid-19 Pandemic?
Lenders are now increasing the Loan to Value ratios on their lending
Although not common, with some research, it is possible to find lenders who are beginning to relax their mortgage lending criteria. Some are willing to offer a 95% Loan to Value mortgage. So long as you have a 5% deposit and can afford the mortgage payments, they will allow you to borrow the additional 5% to make the deposit up to 10%.
This can be really helpful for First Time Buyers in particular, who have struggled to get on the housing ladder since the beginning of the pandemic. Mortgage Brokers have seen an increase in demand for high Loan to Value first mortgages, so there are a lot of people currently wanting to start their home ownership journey.
New lender mortgage deals are also on the increase, with new products, Loan to Value rates, and mortgage rates available almost daily, which would seem to suggest that the market is starting to recover.
Stamp Duty holiday
It’s important to understand that the Stamp Duty holiday hasn’t really affected many First Time Buyers, given that many first homes tend to fall below the threshold for Stamp Duty anyway. Whilst it will have impacted housing chains it won’t affect First Time Buyers’ affordability too much, which means that there shouldn’t be a reduction in their inclination to buy, even if the Stamp Duty holiday is not extended.
For those already on the property ladder, the Stamp Duty holiday has obviously been more of a driving force behind many of the sales over the past year. Many people have achieved higher Loan to Value loans as a result of this.
It’s unlikely that the Stamp Duty holiday will be extended beyond the end of March 2021, although some disagree and think that in some form it will continue. Obviously, until the budget is announced, however, it’s impossible to say for sure. If people are moving just because of the stamp duty holiday, then they should consider whether they are really moving for the right reasons.
People need to see it as a bonus, rather than a given and have a back up plan in place should it be removed prior to the completion of their move. This is especially true, given that the current duration between application and completion on a UK property is around four months, meaning that unless the move was initiated before the end of October, they may not benefit from the Stamp Duty holiday at all.
It’s important to realise that if you’re planning on being where you move to for a long time, then paying a little bit extra doesn’t really matter. If it’s your forever home, the decision is more than purely financial, it’s about the long term quality of life for you and your family.
Continued demand to buy property
There seems to be a continued demand for people wanting to move and the Covid pandemic seems to have, rather than reduced people’s desire to move, made them more determined than ever. Overall, therefore, the UK property market has been fairly resilient to such a significant global issue.
Particularly as a result of lockdown, people are looking for their own space. Where they have lived with parents and in general, people want more space to call their own. Whether that’s space to work from home on a more permanent basis, more outdoor space, or just more control over their own environment, such as the ability to decorate to please themselves.
How does furlough affect people’s ability to buy?
For those who are still furloughed and looking to buy a home, there are not many lenders who are currently accepting these applicants. Those lenders who do, however, are willing to use up to 80% of your original income, up to a total of £30,000 as a maximum. This, unfortunately, is a bit restrictive, particularly for First Time Buyers who typically need to utilise their entire income in order to achieve a reasonable mortgage offer.
Whilst it depends on individual circumstances, the deposit availability, etc, the good news is that some lenders are accepting furloughed applicants. Whilst more challenging than under usual circumstances, there are furlough friendly mortgage deals available to some. These will be more achievable for those who are able to offer a higher deposit or who have more equity available in their current homes.
Why Mortgage Brokers are more vital than ever
Mortgage lenders are changing their criteria so quickly and frequently that it’s difficult to keep up with. This means that Mortgage Advisers are incredibly busy trying to advise people who want to move home, of the latest opportunities available to them. In this type of climate, it’s more important than ever for both buyers and sellers to seek mortgage advice.
Even those borrowers who would have been confident enough to go directly to a lender pre- Pandemic, will not necessarily have such a straightforward application process in current times. There is an overall lack of mortgage products available that people are able to meet the criteria for.
Brokers who have access to a wide selection of lenders are therefore going to save people the trouble of being turned down by a number of lenders. Of course, as well as being time consuming and disappointing, applicants’ credit scores are impacted each time they are turned down for a mortgage too.
How will the mortgage situation and UK housing market change in 2021?
There has been a slight increase in UK house prices over just the past month, probably due to new buyers going to market. There are, however, a shortage of vendors, with a 21% drop in houses going to the market in the year between January 2020 and January 2021. This means the UK property market is currently a seller’s market, which leads to an increase in house prices, due to low availability.
The fact that lenders are returning to the market with high Loan to Values mortgages means that they must feel confident enough to lend, which is a good sign. The end of the pandemic is likely to reveal a pent up need to change and move forward for many people, so hopefully, this will see a return to a healthier property market all round.
Predictions are positive for the buy to let market even after the Stamp Duty holiday ends, so it would seem that people are still looking to invest in property, which will keep the momentum going with the whole housing market.