The property market went through a turbulent time last year with increased demand for mortgages causing logistical problems for lenders. Fortunately, the pace of the market should calm down a bit in 2021 and there should be more opportunities for first time buyers
2020 was a turbulent time for the mortgage market due the impact of the pandemic. During the first lockdown, lenders were inundated with calls from existing borrowers looking to take advantage of the mortgage payment holiday scheme. This proved challenging for lenders who had to cope with additional enquiries while having to adapt to their staff working from home.
When estate agents were able to re-open in May there was a surge of pent-up demand, fuelled further by Chancellor Rishi Sunak introducing temporary changes to Stamp Duty that could potentially save buyers up to £15,000. This led to increased demand, and lenders were unable to cope with the significant volume of applications.
The response of almost all mortgage lenders was to tighten their criteria and withdraw products from the market for buyers with a deposit of less than 20% of the purchase price. It’s important to note that this wasn’t because lenders were concerned about the direction of the mortgage market – these decisions were taken to try and reduce the volume of applications they were receiving.
Some lenders began to slowly re-enter the higher Loan To Value (LTV) market at the very end of 2020, but buyers with a 10% or 15% deposit can rightly feel that they were under-served by the mortgage market in the second half of last year. However, even with lenders returning to the 90% LTV market, it could be argued that there isn’t much value at present. For example, in March 2020 it was possible to fix your monthly mortgage payments for two years at a rate of 1.99%, compared to the market leading a two-year fixed rate at the time of writing of 3.25%. Lenders have been reluctant to undercut each other on price for fear that they’ll quickly become inundated again with unmanageable volumes of new applications.
As we near the end of the Stamp Duty holiday on 31 March, it would seem less likely that a buyer starting the process of purchasing a property will make it to completion on time. This reduction in demand will allow lenders to catch up with their backlog of applications. Once this happens we’re likely to see the larger lenders who have yet to return to the 90% LTV market, such as Santander, launch new products available to borrowers with a 10% deposit.
With a full range of mortgage lenders on board with this, we’re likely to see the 90% LTV market become competitive once again. Lenders need to lend, but they also want to preserve their service levels to avoid demand exceeding supply.
When we have a large selection of various lenders all offering products – especially when a handful of those, such as Halifax, Santander and Nationwide, can all handle reasonably large volumes – lenders feel a little more comfortable. You might call it safety in numbers. All it takes is one lender being more competitive than the rest of the market to attract more business and we’ll see the cost of borrowing come down.
I suspect we’ll see this happen at the end of February or the beginning of March. While we can’t guarantee that the cost of borrowing will return to where we left it at the beginning of the pandemic, I suspect we’ll get pretty close. The market should present plenty of opportunities for those with smaller deposits once we enter the second quarter of the year, particularly first time buyers who will still benefit from paying no Stamp Duty for the first £300,000 of their purchase.
If you’re reading this and you think you would like to take advantage of a mortgage market that is starting to return to normal again, I’d offer the following tips:
- Make sure your deposit is accessible and that you can easily show evidence of it to a mortgage lender and solicitor (a bank or building society statement would be needed)
- Ensure you have all your relevant documentation in order. Make sure your ID is up to date, that you have recent bank statements saved and that you have your payslips and/or self-employment documents to hand
- Check you are named on the Electoral Roll at the correct address and that your address is up to date across all credit accounts such as bank accounts and loans
- Speak to a mortgage broker to ensure that you understand how much you can borrow, and what the monthly payments will be.