Those wanting to take advantage of the current stamp duty holiday to buy a new home or a buy-to-let investment will find that the number of mortgages approved is now back to levels seen before the Coronavirus lockdown. Data from the Bank of England shows that the number of house purchase mortgages approved in July 2020 was 66,281 an increase of 66% on the approvals in June 2020 and only 1% behind July 2019. However, those needing a mortgage at 90% loan-to-value (LTV) or above will struggle, as lenders have pulled many of the mortgages available at this tier and increased rates.
The Halifax House Price Index published today shows that house prices have bounced back and are up 5.2% on August last year at £245,747. The uplift has arisen due to a combination of released pent-up demand and buyers taking advantage of the stamp duty holiday.
The housing market continues to look healthy right now, with new buyer enquiries up 75% and new instructions up by 59% in July 2020, according to figures from the RICS Residential Market Survey. However, experts at the Halifax warn of downward pressure on the market in the medium-term.
Russell Galley, managing director at Halifax, said: “House prices continued to beat expectations in August, with prices again rising sharply, up by 1.6% on a monthly basis. Annual growth now stands at 5.2%, its strongest level since late 2016, with the average price of a property tipping over £245,000 for the first time on record.
“A surge in market activity has driven up house prices through the post-lockdown summer period, fuelled by the release of pent-up demand, a strong desire amongst some buyers to move to bigger properties, and of course the temporary cut to stamp duty.
“Notwithstanding the various positive factors supporting the market in the short-term, it remains highly unlikely that this level of price inflation will be sustained. The macroeconomic picture in the UK should become clearer over the next few months as various Government support measures come to an end, and the true scale of the impact of the pandemic on the labour market becomes apparent.
“Rising house prices contrast with the adverse impact of the pandemic on household earnings and with most economic commentators believing that unemployment will continue to rise, we do expect greater downward pressure on house prices in the medium-term.”
The potential of future higher levels of unemployment and economic uncertainty is also a concern of lenders, which since March 2020 have withdrawn over 1,000 mortgages at 90 LTV and above. Currently (as at 4.9.20), there are only 76 mortgages available in this category compared to more than 1,100 before the lockdown in March 2020. The average rate for a two-year fixed rate mortgage at 90% LTV has also risen sharply, from 2.54% in March 2020 to 3.54% on 4 September 2020.
While those that have managed to save their deposit face a lack of choice and rising interest rates, those still saving for their first home face a growing struggle of finding the cash for a large deposit.
Rachel Springall, finance expert at Moneyfacts.co.uk, explains some of the challenges for those saving for a deposit and suggests ways to overcome these.
“First-time buyers may feel deflated to find a contraction in the market for higher LTV mortgage deals and to see property prices rise. The average age for a first-time buyer is now 31, a year older than that of 10 years ago, and the average deposit has increased by a quarter (25%) over the same period. Without the help from the Bank of Mum and Dad, it would not be surprising to see some prospective buyers to put their plans on hold until more mortgage deals enter the market that they can comfortably afford.
“Those first-time buyers who are paying rent may also be struggling to put aside a healthy portion of their disposable income towards a deposit for a home. Indeed, according to HomeLet’s rental index, the average UK rent for new tenancies is £951 per month. If borrowers are expected to amass a deposit of £47,000 over the next five years and have no savings, then they would need to put aside around £780 per month starting now.
“There are ways to boost a savings deposit, and consumers could get a max boost of up to £1,000 a year from the Government with a Lifetime ISA – so this extra cash can be a vital injection. The low rates seen across the savings landscape are disheartening, but property prices can go up as well as down, and with mortgage products tightening, borrowers may only be able to stretch their savings so far.
“As we have seen over the past six months, lenders have pulled many higher LTV deals, with some institutions leaving these sectors entirely, largely because of the high level of demand they are experiencing due to the Coronavirus pandemic. Until matters settle, there is no clear sign of when these deals will return to the market, and with 1,108 fewer deals available than six months ago at 90% LTV and above, it is clear to see how much choice has reduced for potential first-time buyers. There are still some deals to choose from, and recently Virgin Money entered the market with 90% LTV deals, over a seven and 10-year fixed term.
“If borrowers are adamant to get onto the property ladder right now, they could consider a guarantor or family assist mortgage. However, these may not be suitable for everyone, and not all borrowers will have family to help them get a step on the property ladder, so for many, it could be years until they amass a large enough deposit.”
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