Nathan Cole

In this week’s mortgage memo, we are discussing the slowdown in the purchase market, lenders hit by a Covid outbreak and a new player in the professional mortgages market.

Purchase market slowing down… 

We have seen a significant decline in purchase enquiries in the last couple of weeks. We believe this is due to the end of the SDLT holiday approaching and buyers holding off to see what happens and whether it is extended or not. There are calls from across the industry for an extension as there are fears the end of the holiday could see a cliff edge fall in transactions. However, with prices having risen so significantly and eroded any savings it may not be worth buyers worrying too much about the deadline… 

• There are other factors at play, including a lack of supply, with the new stock of homes down 12% in the first 2 weeks of 2021 according to Zoopla which will keep prices high for the foreseeable, until people are comfortable with having potential buyers in their homes. 
• The timescales to beat the SDLT deadline, unless extended, are now too short for most purchasers even with lenders returning to normal processing times… If the holiday is extended, we can expect an increase in purchase enquiries almost immediately.  
• We believe that the next couple of months will be slow until lockdown eases and people become more comfortable with both putting their houses on the market and in viewing property and with the optimism generated by the vaccine, we expect we will see a boom in purchases in the summer months, very similar to 2020 in terms of a tumultuous year of peaks and troughs in demand. 

Lender hit by Covid outbreak amongst underwriting staff

A lender we work closely with has recently suffered from a Covid outbreak within its underwriting team and thus had had to withdraw all sub 80% products on account of reduced capacity. This highlights just how difficult the situation is facing lenders at present as they try to manage an enormous workload with staff safety and is indicative of why we have seen longer processing times in recent months.  

• We wish everyone involved a speedy recovery. 

• It remains important that buyers understand that this situation remains fluid and to maintain expectations for increased processing times when making a purchase. 

Professional mortgages seeing new player with increased loan-to-income ratios 

Platform, the Co-op’s intermediary lending channel has recently announced increased loan-to-income multiples for newly qualified professionals, i.e., those with professional qualifications such as accountants and the like, to 5.5x income.  

• Other lenders like Clydesdale and some specialist building societies already do the same, however it is good to have another lender to join them. 

• This highlights the way in which lenders are competing for the lowest risk propositions available and are rewarding these types of borrowers accordingly. Ultimately, in this post-pandemic lending landscape with employment under greater scrutiny, those who can easily show that their employment is secure in the long term are in a better position.  

• We believe with rates already low and not much margin to decline further, we will see criteria and product innovation becoming more prevalent in 2021 as lender ease restrictions tightened at the beginning of the pandemic and look for niche areas to operate within and make a good margin.   

Best mortgage buys for the week  

Another significant fall this week in the best 2-year discounted variable rate mortgage available, down 0.2% to 1.29%, making it highly competitive with the standard 2-year tracker and 2-year fixed. Some smaller decreases in the 3 and 5-year fixed both down 0.01% to 1.21% and 1.26% respectively. Again, as only a few percentage points more than the 2-year fixed we may see more borrowers opt for these medium-term mortgage types in the coming weeks and months. All other rates and the lenders offering them remain the same.  

As it stands it is important to remember that these rates are only available at low-LTVs and on remortgages for the most part, and significantly higher rates if a purchase. For instance, the difference between the best 2-year tracker for remortgage and home mover is 0.3%... 

It is important to note that lenders across the board have changed their lending criteria, so to get an accurate picture of what is possible in your specific circumstances, please contact us and one of our expert consultants will be more than happy to assist you. 

The main talking points in the mortgage market this week are lenders continuing to open-up despite the new lockdown and Santander creating huge restrictions for self-employed applicants…

Mortgage market continuing to open-up despite the pandemic and new lockdown

Despite the new National lockdown and surge in cases and deaths in recent days confidence in the property market is continuing to grow, illustrated by further lenders returning to 90% LTV this last week, including HSBC and Coventry Building Society. This comes despite numerous commentators suggesting a fall in prices is coming this year…

• We have seen the large number enquiries continuing of late despite the current situation and it seems that this lockdown and now talk of restrictions remaining in place for the long term has further entrenched buyers desire to move to have more space both for work and outdoors.
• With prices having risen so much in the last 9 months lenders have some more wiggle room if prices are to fall, unless they fall in a significant way and moreover, borrowing at this LTV remains relatively expensive and is more a akin to a 95% LTV pre-pandemic.

Max 60% LTV for self-employed borrowers from major high street lender

The self-employed have had a tough time when it comes to getting mortgages since the advent of the Covid pandemic. Self-employed borrowers are seen as higher risk for lenders and with the higher levels of scrutiny required for the applications it is taking lenders far longer to process cases, however no lender has gone as low as 60% for a maximum LTV until Santander now - there is good reason though…

• This highlights just how incredibly long it is taking to underwrite self-employed mortgages – 40 working day average from application to offer for Santander, which has got to be close to the worst in the industry and thus likely to be delaying normal business too. This therefore is not so much a question of self-employed borrowers risk profile increasing, but more of means for Santander to manage their timeframes for processing.

Over 500,000 people in rent arrears – more bad news for landlords

According to recent research by Citizens Advice, circa half a million private renters are behind on their rent – this is 11% of all private renters. Moreover, the government have once again quite rightly extended the ban on evictions and thus this could mean some landlords may have seen a rental void approaching a year now…

• Private tenants have not had any structured way to defer payments in the way that homeowners with mortgages have and thus they have been placed under even greater fiscal pressure given the circumstances.
• It is a very difficult situation as you do not want to see people being evicted and made homeless, but for landlords this could put them in a very precarious financial position and thus we could see more landlords exit the market in the coming months and this could be accelerated if prices start falling…
• Many people perceive landlords as very wealthy and can afford to take the losses, but many rely on rental income as their income like a pension. Mortgage holidays taken will have often finished now and merely push a problem down the road as the debt still has to be paid.

Best mortgage buys for the week

We have seen one rather significant fall this week, with the best 2-year fixed now at 1.05% (a decrease of 0.09%). We shall see if other lenders follow suit and if this lender will remain at this rate or is simply doing so to drive business levels as they have capacity in the coming days. All other rates and the lenders offering them have remained static.

As it stands it is important to remember that these rates are only available at low-LTVs and on remortgages for the most part, and significantly higher rates if a purchase. For instance, the difference between the best 2-year tracker for remortgage and home mover is 0.3%...

It is important to note that lenders across the board have changed their lending criteria, so to get an accurate picture of what is possible in your specific circumstances, please contact us and one of our expert consultants will be more than happy to assist you.

For those who are interested, please see below a rundown on the current mortgage market... 

At a glance: 

·         Second lockdown and the mortgage market 

·         A competitive “green” mortgage… finally 

·         LTV restrictions for self-employed borrowers 

Second lockdown and the mortgage market 

With infection rates spiralling across the country a second lockdown was always an inevitability, however this time the property market is not going to be shut down as in March. However, the question remains how many people are going to be out and about viewing property given the circumstances? Ultimately, this is likely to entrench the current trends for those looking to move to houses with more space, both outdoors and to work remotely, and means areas outside major cities are likely to see higher demand than pre-Covid.  

• A second lockdown and the corresponding economic repercussions are exactly why mortgage lenders have been being cautious of late and this is likely to cement this position for lenders going forward. We expect to see further restrictions on borrowing certainly for those with deposits smaller than 20%, with these products almost certainly becoming even harder to find, and those that are available will charging even higher rates to account for the risk. 
• The housing boom and corresponding number of mortgages issued has defied the economic reality and given that there does not appear to be a silver bullet currently for Covid we could see buyers taking the plunge sooner, rather than later, benefitting from the Stamp Duty Holiday and looking to acquire a property that will make living in the new normal more enjoyable – keeping the housing boom going in the short term. 
• So far the crisis has disproportionately affected younger people, who are more likely to be renters, however as the economic outlook remains highly uncertain, with unemployment now rising across the board, the market will come back to earth with a large shock unless the SDLT holiday is extended in the medium term… 

A competitive “green” mortgage… finally 

Homes in the UK account for circa 15% of emissions and thus are a key area if we are to become carbon neutral as a nation in the relatively near future. We have been waiting a while for a lender to offer mortgages at a competitive rate to borrowers who are purchasing energy efficient homes, with A and B EPC ratings, and NatWest has just launched a new product doing just that. The rates look generally better than their normal purchase rates and previously lenders only had products like this for quirky green eco builds, help to buy green new builds or were offering cashback after completion for bringing up EPC ratings (but at nowhere near this rate).  

• Products like this are essential if we are going to see and increased number of people considering the energy efficiency of their home and it is a good policy to reward those who are benefitting the environment. 
• This product is purchase only now, but it would be great to see a remortgage product too, to reward those who since buying their property have increased the EPCs. This would be the natural next step to also reward those already in more eco-friendly homes. 

LTV restrictions for self-employed borrowers 

More bad news for self-employed borrowers as Nationwide, one of the largest mortgage lenders in the UK, has curtailed LTV to 85%. This combined with the limiting of income multiples and more restrictive and stringent application process, means self-employed borrowers are facing an ever-increasingly difficult position, meaning they can borrow less in terms of the total borrowing amount, require larger deposits and need to prove the viability of their businesses going forward in the face of far higher levels of scrutiny.  

• 85% LTV is in effect becoming the key battleground across the board for lenders, for all types of borrowers and for the most competitive rates you need even deeper pockets and at least a 25% deposit.  
• Despite the high number of restrictions there remains a great deal of demand for self-employed mortgages and this is indicative of how much people want to undertake moves at the moment, both to save on Stamp Duty and to improve their homes given the amount of time we are all spending inside at present.  

Best mortgage buys for the week  

After several weeks of no movement whatsoever we have seen a decrease of 0.04% in the 2-year fixed rate with a reduced arrangement fee of £999. The 3-year fixed has increased by 0.04% and the 5-year fixed has decreased by 0.02% bringing these rates closer to parity again and now a key battleground for lenders. All other mortgage rates and types offering these rates remain unchanged this week, however this does not illustrate the full picture as these rates are only available to the most low risk borrowers, those with significant equity in their properties in the case of remortgages or significant deposits in the case of purchases and thus a low LTV.  

This is our take on recent news in the mortgage market. Our views are often cited in several national publications, including; BBC News, The Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of key trade publications, so this should keep you ahead of the curve. If you have any questions on any of these stories, or would like further information, please do not hesitate to get in touch.

https://www.privatefinance.co.uk/news/blog/2020/09/28/private-finance's-weekly-mortgage-memo---28th-september-2020