The pandemic has had a major impact on the availability of funds for buying homes, largely as a result of caution on the part of lenders. The number of mortgage products on the market fell dramatically as lockdown hit, but thankfully has begun to return.
However, lenders continue to impose stricter borrowing criteria and ask for larger deposits, so working with an experienced mortgage broker is more important than ever. There are great affordable deals available beyond those from traditional High Street lenders, as well as many schemes to help home buyers, particularly first-time buyers.
And, with the government’s stamp duty holiday making many properties even more affordable, this could be the right time for buyers and buy-to-let investors to find the right deal and secure a property.
Here our experts at Portico Finance give a detailed property finance and mortgage update for first-time buyers, homeowners and landlords, as well as explaining how we can help.
A rush to move before the March 31st stamp duty exemption deadline
Until the Covid-19 pandemic hit the housing market, stamp duty applied to the purchase of all properties – first or second homes – worth more than £125,000.
But, in an effort to stimulate the housing market, the Chancellor raised that threshold to £500,000 for any property purchase in England or Northern Ireland completed between July 8th 2020 and March 31st 2021.
That meant buyers could save an estimated £15,000 on a £500,000 property purchase.
Lending caution is also beginning to ease as the stamp duty scheme drives more sales and increases stability in the housing market. One major lender has reintroduced a number of affordable products, stating that it could see housing market activity returning to pre-lockdown levels as a result of the scheme.
We expect this growth to continue as the scheme nears completion in March 2021. So, if you want to take advantage of the stamp duty holiday and make big savings, check out some of the many affordable properties that are available, particularly in outer areas.
Save On Properties For Sale In South London.
Save On Properties For Sale In North London.
Fewer low-deposit deals, but for brokers working within a network, products are on the rise
Before the pandemic hit, one of the most popular types of mortgage was the 90 percent Loan to Value (LTV) mortgage. Buyers receive funds covering 90 percent of the value of the property and provide the balance of 10 percent as a deposit. Some funds offered an even better deal with just 5 percent deposit required – a 95 percent LTV mortgage.
This type of mortgage made homes relatively affordable for first-time buyers, particularly younger buyers who were unlikely to have savings or other funds for a higher deposit.
However, the number of 90 and 95 percent LTV products fell sharply in March 2020, with lenders asking for 20 or even 25 percent deposits.The good news is that some lenders have started to reintroduce the 90 percent LTV mortgage as activity in the housing market increases, although commentators believe it may take longer for the 95 percent LTV product to return. Meanwhile, first-time buyers can take advantage of the stamp duty holiday to make some savings on the total cost. And, there are a number of helpful government schemes that can make it easier to get that first home with a low deposit.
Help for first-time buyers
The Help to Buy scheme, for example, offers loans of 20 percent for properties outside London and 40 percent for homes in London. The homes must be new builds valued at up to £600,000. Buyers only have to provide a 5 percent deposit and meet affordability criteria for the balance of the mortgage, which would be 55 or 75 percent of the value of the property.
The Shared Ownership scheme helps first-time buyers purchase a share of a home for a price that is between 25 and 75 percent of the home’s estimated value. They pay rent on the remaining share, generally to a housing association. For London residents, this part of the scheme is available to people with an income less than £90,000.
Shared Ownership can help overcome the problem of high deposits and acquire a home that might be out of reach under other forms of financing. For example, buying 25 percent of a larger home worth £600,000 would require a deposit of just £15,000 and a mortgage to cover the remaining £135,000, which would require a salary of around £30,000.
Some lenders may offer a Guarantor Mortgage. This works by allowing parents to help their children by linking their income. The parents act as sponsors, enabling children to obtain a mortgage of 85 percent. If the children miss a payment, the lender can ask the parents for the shortfall.
While these schemes can help to overcome the potential problems of higher deposits, there are also an increasing number of funding options beyond those available from High Street lenders.
Before lockdown, mortgage applicants had a choice of 5,222 products from High Street lenders, including LTV, fixed and variable rate products, according to the Moneyfacts Treasury Report. That number fell to 2,566 in May, saw a slight increase during the summer and is lower still at 2412 in September.
However, a wider choice of mortgage deals is available from brokers such as Portico Finance, who work within a network. Numbers fell from a pre-lockdown level of around 20,000 to 9000 during the pandemic, but are currently up to around 13,000.
Related: Price Cuts Make Clapham a First-Time Buyer Haven
Interest rates increasing, lock in a deal now
August saw a continuing increase in mortgage interest rates, affecting buyers hoping to secure a low-cost fixed-rate mortgage deal. Figures from the Moneyfacts Treasury Report indicated that the average two-year fixed-rate product had risen from 2.08 percent at the beginning of August to 2.64 percent by the beginning of September.
Interest rates on five-year fixed-rate deals rose by 0.15 percent in the same period - the biggest increase since March 2011. Lower interest rates are available on certain products, but they generally require a much higher deposit. An example is a two-year fixed rate of 1.17 percent on a 60 percent LTV mortgage.
Overall fixed rate deals have seen a large hike on the average figure of 1.99 percent available in July 2020. Although there is uncertainty if or when rates will rise again, buyers and investors can take the opportunity of relatively low rates to make a purchase now and take advantage of the various schemes and the number of affordable properties available.
Steve Jackson of Portico Finance commented, “Since the return of agents being allowed to open their doors we have seen a record number of people registering for a mortgage. A large number of those clients are taking advantage of the advice we have given them, and their feedback has been that we have given them the confidence in them understanding their true budget.”
With stricter lending criteria, help from a mortgage broker is a must
Lenders are now more cautious in their dealings with mortgage applicants given the continuing economic uncertainty, the impact of widespread job cuts and the end of the government’s furlough scheme in October. They believe that they are likely to face an increasing number of defaults.
Many existing borrowers have been able to enjoy a temporary payment holiday, but, for new applicants, the challenges are more daunting. Some lenders, for example, have refused to consider applications from people on furlough and have imposed stricter lending criteria on self-employed workers.
While affordability levels are still based on multiples of household income, proof of income and credit checks are now more stringent and approval processes generally take much longer.
Research by Market Financial Solutions (MFS) found that 52 percent of people planning to buy a property during the government’s stamp duty holiday were concerned they would not get a mortgage.
The survey found that 31 percent of applicants had been refused a mortgage and 43 percent had been gazumped as a result of delays in mortgage processing. Steve Jackson of Portico Finance commented, “COVID has spurred lenders to change criteria like we have never seen before, so working with a broker has never been more important in this process. My team and I work hard to keep up to date with all the changes in real time, making sure that buyers have the confidence that if you choose us to arrange your mortgage we manage your application from start to finish.”
Buy-to-let demand increasing
One sector of the market that is benefitting from the changes is buy-to-let. Landlords see an opportunity to increase their portfolio by taking advantage of the stamp duty holiday and reasonable availability of buy-to-let mortgages. Although second home buyers face a surcharge of 3 percent on stamp duty, the savings are still significant.
The interest in buy-to-let is driven by the general increase in renting following the pandemic and a shortage of rental properties. New and existing landlords see opportunities to benefit from both rental revenue and the increasing value of the properties they hold.
Get an instant rental valuation for your property, or get a snapshot into potential rental yields from our London rental yield map.
Read More: Covid-19 Changes To Lettings Legislation
Mortgage support from Portico Finance
Choosing the right mortgage provider can be a confusing and intimidating process, especially for first-time buyers facing tougher lending rules.
That’s why we decided to bring the process in-house and launch Portico Finance, an FCA approved mortgage broker and protection service. As well as residential, buy-to-let, holiday let and specialist finance mortgages, the team at Portico Finance can advise on life insurance, critical illness cover, income protection, landlord insurance, building and contents, and accident, sickness and unemployment insurance.So, whether you're remortgaging or moving, a first-time buyer, a landlord, or if you’re interested in a different type of protection service, please feel free to contact us to find out how Portico Finance can help.