The housing market is experiencing a mini-boom as a result of pent-up demand post-lockdown and the new stamp duty payment holiday. Rightmove reported a 75% increase of buyer enquiries in July 2020 compared to July 2019 and 44% of sellers that listed from 13 May 2020 have now been marked as sale agreed.
While the demand to buy a home is regaining strength, the availability of mortgage finance has been cut in half, with only 2,526 mortgages currently available from a pre-lockdown number of 5,222. The choice of higher loan-to-value (LTV) mortgages has been hit the hardest and nine out of 10 mortgage deals at the 90% and 95% tiers that had been available on 1 March 2020 have now disappeared.
Buyers with a deposit or equity in their current property of less than 10% will only qualify for 95% LTV mortgages – there are only 20 currently available and, of these, the majority require a guarantor to provide additional security in lieu of a larger deposit or have postcode restrictions as to where they will lend. Those with 10% equity in their current home or as a saved deposit will need a 90% LTV mortgage and, there are currently only 68 mortgages available at this LTV.
In the past week the large banks have issued their first half 2020 financial results, with NatWest and Lloyds reporting losses and Barclays and HSBC achieving profits, but at significantly lower levels than pre-Covid-19. To date, approximately £8bn has been allocated from these banks for future bad debts as they anticipate a worsening economic outlook in the second half of the year. As a result, lenders are controlling their range of mortgage products and aiming to make sure they limit any additional future losses. Higher LTV mortgages in particular can present more risk to lenders because there is less of a gap between the amount owed and the potential amount they could recover by selling the property.
With a bleak economic outlook, buyers at higher LTVs should be prepared that product availability is unlikely to change soon. Plus, with several lenders starting to increase mortgage rates last week at 85% and above LTVs, borrowers may want to act sooner rather than later to secure their mortgage deal.
At 95% LTV, borrowers may find they are disappointed when lender rules stop them accessing the top deals. Furness Building Society has a two-year fixed rate mortgage at 3.29% with no product fee but it is restricted to those buying in the LA postcode area. Buckinghamshire Building Society also advertises a 95% LTV mortgage, but this requires a guarantor to provide security equivalent to at least 80% of the value of the mortgage.
The third-best rate at 95% LTV is from Al Rayan Bank. This Sharia bank offers home purchase plans – the Islamic alternative to a mortgage. Its rate of 4.89% fixed until 31 December 2021 is available to all UK residents and there is a product fee of £999. The application process is the same as a standard mortgage and borrowers can apply directly with the bank. This mortgage is available to first-time buyers and those moving home.
Find out more about how home purchase plans work.
To add further to the woes of those with smaller deposits trying to get a mortgage, borrowers may also find the source of their saved deposits under restriction. It is reported that Nationwide Building Society has now introduced a cap on how much family members can contribute to a borrower’s deposit. The UK’s largest building society has placed a maximum limit of 75% on deposits from family members.
With increasing competition for houses, fewer mortgage deals available and now the potential of increasing rates, borrowers need to know how to put themselves in the best position to secure their next home.
Buyers with 5% or 10% deposits or equity can either look to accelerate an application with one of the few lenders in the market (if they are eligible) or look to increase their deposit and gain more choice in the market. For example, improving your LTV to 85% increases the number of mortgages available to 347. However, the time to save potentially double your existing deposit is not quick to do. Those looking to buy a new build property can benefit from a Help to Buy loan from the Government – this lends the borrower up to 20% of the property’s value. Help from a family member is one of the most common ways to quickly boost a deposit, either through a guarantor mortgage using the security of a relative’s property or as a cash gift that increases the buyer’s deposit so they can get a mortgage at a lower LTV. Family members that use their property as security for a guarantor mortgage are placing their home at risk of repossession if the mortgage is not paid in the future.
Those ready to proceed now with their mortgage application can follow our checklist below to keep their application moving:
In some cases, buyers may move from step one to four in a matter of hours or days. A mortgage broker can be a useful shortcut for all these stages, especially the early ones, as they usually know lenders’ criteria and requirements from experience.
If a borrower’s circumstances change at any point during the process, the mortgage application will need to be reviewed and this can cost more time. Borrowers that are aware of any future changes should share this when applying, so this is accounted for from the beginning.
The Coronavirus lockdown has had a significant impact on the time buyers must wait for the property they wish to buy to be valued. Different lenders use different surveying firms to conduct their valuations and some may use virtual valuations instead of physical valuations. Borrowers should ask their mortgage lender the current timescale on valuations and if a virtual valuation could be completed instead. Our recent news article identified those lenders using virtual valuations at the time.
A good solicitor is a critical part of pushing through a house purchase. Buyers can choose to instruct their own solicitor or to use one on the lender’s panel. Solicitors on the lender’s panel will be familiar with that lender’s requirements, and by using them, this may save time and money. However, those with low fees may be firms that specialise in a high volume of transactions and this can make it harder to get a personal and responsive service. Buyers should also make sure that their solicitor requests the required conveyancing searches as early as possible, as often these can take many weeks to complete.
The hardest part of buying a new home quickly is managing the chain of other buyers and sellers in the process. Buying a property without a chain has the significant advantage of removing these issues. In all cases though, having good communication with all those involved in the chain will help to keep the purchase on track.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.