Mortgage Medics: September 2020

As we slide in to Q4 of what must be the strangest year most of us have lived through, unexpectedly I find myself writing about an exceptionally busy, albeit challenging, property and mortgage market.

By Sam Murphy – Managing Director Mortgage Medics

Like many businesses, during lockdown we saw both enquiry levels and our ability to transact new business reduce dramatically, but since Chancellor Rishi Sunak announced a stamp duty holiday on 8th July we’ve seen enquiry levels soar.  Even before this, as lockdown restrictions eased, we started to receive calls and emails from renters and existing homeowners alike keen to change their living arrangements. Being cooped up during lockdown without outside space was probably the most obvious negative for those affected, but living with or indeed without certain other people has also been a driver for change.

As a result, over the last few months we’ve been helping more people than ever explore their options to get on the ladder or move home, and whilst the mortgage market is still very active, there are some extra considerations to keep in mind.  Read on and I’ll summarise the main themes of the current market – and what’s causing them.

Stamp Duty Holiday

As mentioned above, Rishi Sunak announced a stamp duty holiday on 8th July, which is set to run until 31st March 2021.  Under the terms of the scheme, the standard rate of stamp duty is waived on the first £500,000 of transactions. For first time buyers and most home movers this means no stamp duty at all, with the chancellor claiming during the announcement: “Nearly 9 out of 10 buying a main home this year will pay no stamp duty at all.”

The maximum saving is £15,000, applicable to properties changing hands for £500,000 and over, and the saving is available to all types of buyers.  Investors buying to let and existing homeowners looking for a second home or holiday home can also save up to £15,000, but they’ll still pay the additional rate of stamp duty of 3% of the purchase price.

Downsides?  Well there were fears that the potential savings might entice sellers and estate agents to increase asking prices.  It’s true that prices have recovered and stayed strong in recent months, however this is to be expected in a busy market, and so whilst the potential stamp duty saving may be pushing prices up, it’s increasing buyer mobility, especially for those with smaller deposits.  Speaking of which…

Scarcity of low-deposit mortgages

The greatest challenge we’ve faced in the last few months is the disappearance of mortgage products available to buyer with deposits of less than 15% – a problem which affects first time buyers disproportionately.  Prior to lockdown it was possible to borrow 95% LTV (loan-to-value) with a healthy number of lenders, on competitive terms.

As lockdown struck many lenders restricted lending to 75% LTV overnight, primarily because it was impossible to send surveyors out to properties for valuations.  As restrictions eased and lenders made greater utilisation of non-physical valuation methods, we’ve gradually seen LTVs improve across the board, with the majority of lenders now offering 85% mortgages again.

We now seem to have levelled at a situation where regular 90% mortgages are only released in very small quantities by the few lenders willing to support this part of the market, and on each release the rates on offer are creeping up, making it less affordable for buyers.

Despite this, it may surprise you to read that it’s actually still possible to borrow 100% in certain circumstances.  If a parent or other suitable supporter is willing to put up their own savings or property as security for a period of time, then it may be possible to buy without any deposit at all.  The Government Help to Buy scheme is also still very much active on eligible new build properties, with the minimum deposit still just 5% of the open market value.

The cause of this scarcity is two-fold.  Firstly, lenders are nervous that the medium-long term implications of the coronavirus crisis could see house prices drop.  If this happens and they’ve been lending carefree at high LTVs then many homeowners could end up in negative equity, with negative implications for both borrowers and lenders.

Secondly, lenders are having to undertake increased levels of scrutiny with a reduced workforce due to social distancing requirements.  This means it takes longer to process applications and lenders only really have two short-term solutions to reduce the number of applications they receive and protect service standard; put their prices up or withdraw from certain parts of the market.  In many cases lenders are doing both, despite the underlying cost mortgage funds to lenders being cheaper than ever.

Challenges, delays and extra scrutiny for the self-employed

Understandably, many self-employed and business owners will have taken a real hit over the past 6 months.  For many the future remains uncertain, whilst for others they’ve returned to some degree of normality and can feel confident about the future.  The challenge for lenders is that they have an obligation to assess affordability and lend responsibly, and with company accounts and tax returns only being completed annually, it’s difficult to get an accurate picture. 

As such most lenders are now asking for financial information covering the last few months and if this doesn’t support a level of income somewhere near pre-Covid levels, lending can be hard to come by.  This in turn is causing significant delays with some lenders taking weeks to arrive at a lending decision.

If you’re thinking of moving or remortgaging

Whilst there are challenges as outlined above there are also opportunities with a lot of housing stock coming to the market and sellers in all sorts of different situations, meaning bargains and projects should be amongst the new listings on Rightmove.

We’ve never had to work harder for our clients and be more on the ball, so it’s more crucial than ever to take independent advice from a whole of market broker.  If you’d like that to be us, we’d love to hear from you; just pay us a visit at www.mortgage-medics.com.