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STAMP DUTY CUT LEADS TO RISE IN MORTGAGE SEARCHESWhile there was an initial burst of activity when the housing market re-opened in May, many people doubted whether this level of demand for homes would last. There is no denying the impact of the COVID-19 pandemic, and it is likely some households who planned to move have now decided to wait.
This is a key factor in why the stamp duty holiday was introduced. It is believed the measure may lead to an additional 100,000 homes being sold. There has been increased activity since the measure, and the Experian mortgage comparison site says they have witnessed a rise of 29% in mortgage searches.
The stamp duty holiday has encouraged buyers to act
On Wednesday 8th July, the Chancellor of the Exchequer, Rishi Sunak, has announced an increase in the stamp duty threshold in the Summer Update. The key points of the stamp duty changes are:
Stamp duty threshold is now £500,000
This increase in stamp duty threshold is set to run until 31st March 2021
The increase in stamp duty threshold takes place immediately
Amir Goshtai is the Managing Director of Experian Marketplace, and he said; “Since the chancellor’s announcement of a stamp duty holiday, we’ve seen a surge in people searching for mortgages, demonstrating its immediate impact.”
Amir continued by saying; “Mortgage product availability is starting to grow to meet this demand, as lenders reintroduce products back to market, including higher loan to value ranges. The announcement should also help more people qualify for these products as the stamp duty holiday enables them to provide a larger deposit.”
Some experts believe the boost will be short-lived
As you would expect, there are some doubts and concerns over how prolonged interest in property will last for.
Andrew Southern is the Chairman of property developer Southern Grove, and he said; “The annual decline isn’t particularly flattering but it’s the trajectory that’s most important. The next few months are going to make June look like an amuse-bouche rather than an entrée. A healthy improvement in volumes month on month points to a large proportion of agreed sales that were knocked back due to the pandemic finally reaching completion. However, those who only began seriously looking in late May won’t necessarily feature in these figures for months yet.”
Other factors shape housing market and demand for mortgages
It should also be noted that changes in personal circumstances might lead to house moves. Information provided by Co-Op Legal Services in June 2020 indicated divorce enquiries increased by close to 40% since the beginning of lockdown.
James Forrester is a Managing Director of Barrows & Forrester estate agents and he spoke to City A.M., saying; “We are seeing a spike without a shadow of a doubt, and we’re starting to see that boost of stock come through. It’s just unfortunate we’re seeing the boost from people deciding they no longer want to be together.”
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BOUNCE BACK LOANS – AN ISSUE FOR MORTGAGE APPLICANTS?With stamp duty measures encouraging people to buy property, it is likely a lot of households will consider applying for a mortgage. When you consider the challenges many people, households and businesses have faced in 2020 because of the COVID-19 pandemic, it is positive to see so many people feeling optimistic as to what will happen in the rest of the year.
One industry expert has predicted the stamp duty holiday will lead to 100,000 additional sales in the housing market. This is a considerable sum, and one which will provide significant confidence in the property market.
However, there have been reports that some people are experiencing challenges in their mortgage application, because of assistance they have received. Anyone who has received a Bounce Back loan for their business might find arranging a mortgage becomes even more challenging.
This issue has been primarily flagged as a concern for landlords looking for a mortgage to expand their property portfolio, but it is an issue all prospective home-buyers should consider.
What is a Bounce Back loan?
A Bounce Back loan is a loan which has been backed by the state and is available for sums between £2,000 and £50,000. The loan is capped at 25% of the total turnover for the business. There is no need to make a repayment in the first year of the loan, and even though the loan can run for up to six years, there is no penalty for an early repayment of the loan.
Is there a problem with these loans?
It appears that when an underwriter finds evidence of a Bounce Back Loan, they will review the application more closely. There have been reports of some applications being refused when the applicant has a Bounce Back loan in place. Similarly, some applicants have found they receive an offer which wasn’t as appealing as they hoped to receive.
With around 860,000 loans of this nature having been issued since May, there will be many people looking on with interest and concern.
Andrew Montlake is a broker at Coreco and he said; “Given the nature of the bounce back loan and its ready accessibility, it seems natural for many businesses and landlords to take advantage of this so they have it as a ‘just in case’ provision. It does not necessarily mean that that they are in any kind of trouble at all. You could argue that it would be remiss of them not to take up the offer.”
Andrew continued by saying; “Whilst I understand that lenders are approaching the current environment with some caution, the whole point of the assistance is to help people to carry on as normal. Not lending to people just because they have taken a bounce back loan seems against the spirit of the government assistance.”
Matt McCullough is a National Sales Manager at Aldermore, and he was speaking at The Buy To Let Online Forum, when he said; “Bounce back loans form part of many businesses contingency plans at this challenging time and so long as a loan taken isn’t being used to fund a mortgage it would be suitable for us. Lenders really want to ensure that companies are not facing ongoing challenges that could in practice put the mortgage at risk. So long as that is also mitigated then there isn’t a real overall issue.”
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SIZABLE NUMBER OF PEOPLE TOOK MORTGAGE PAYMENT HOLIDAYAccording to information provided by the BBC, one-sixth of homeowners arranged a mortgage payment holiday. This is the equivalent of two million people, and it is important to note there are now some concerns about the longer-term impact of the mortgage payment holiday.
Lisa Orme is the managing director of Keys Mortgages and she has advised mortgage holders only to take a mortgage payment holiday as a last resort. Lisa said; “We know, anecdotally, that people have used them to pay off credit cards, pay for holidays, pay for cars. I’ve been saying to people, despite all these promises about how it won’t affect your credit file, I absolutely guarantee it will come back to bite you.”
Sarah Coles, personal finance analyst with Hargreaves Lansdown, also spoke on this matter, saying; “Banks will look at your payment history. And if you’ve got a three-month gap around this period, they are going to know that has clearly come from a mortgage holiday. If you’ve got a six-month gap, they are going to know you’ve had to extend it. And that will give them a really clear indication that you were having some financial issues at the time. So it will then make it harder to borrow.”
There has also been clarification on this matter from the FCA who released this statement in May; “Lenders may use sources other than credit files, such as bank account information, to take account of other factors in their lending decisions. These factors could include changes to income and expenditure.”
Lenders are contacting customers with revised payment details
With the end of the three-month period for people who took out the mortgage payment holiday when it was first offered looming, many lenders are contacting customers to outline new payment details.
Virgin Money Group says that there will be no impact of a payment holiday on any lending decision they make in the future, but this isn’t the norm in the industry.
There have been significant numbers of people taking mortgage holiday payments
Lloyds Banking Group, which includes the Halifax, state they have approved 450,000 mortgage payment holidays for customers. The Remote Mortgage Director of Halifax, Tom Martin, has spoken about how a mortgage holiday might impact on a person’s ability to borrow in the future.
Tom said; “We base our decisions on a full understanding of a customer’s up-to-date circumstances. We do take into consideration your latest financial position, but we recognise as well that these are unprecedented times and we will consider individual circumstances as part of that process.”
NatWest have also released a statement on this matter, saying; “We will take customers’ circumstances into consideration when considering any borrowing requests. If a customer’s income is currently impacted by COVID and they are unable to afford their mortgage, we would consider this.”
A Treasury spokesperson said; “The Financial Conduct Authority has been clear that payment holidays should not have a long-term impact on people’s credit rating.”
If you are considering arranging a mortgage payment holiday, but are yet to do so, there is still time. The deadline for households looking to arrange a three-month mortgage payment holiday is 31st October 2020. This support is on offer to anyone who has been negatively affected by the COVID-19 pandemic. Also, it is worthwhile for people to note that property repossessions have been banned by the FCA until the end of October this year.
Anyone looking to arrange informed and up to date guidance regarding a mortgage should speak with an experienced professional.
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APPROVAL OF NEW HOME LOANS FALLSAs would be expected by many people, the number of new home loans approved in Great Britain has decreased by 90% since the outbreak of the COVID-19 pandemic. The Bank of England states this is the lowest level since the early 1990s.
Even though estate agents have been operating in the property market since mid-May, there was a fall in the number of mortgage approvals. There were 15,900 mortgage approvals in April, and this fell to 9,300 for May 2020.
A new low since records began
The market predicted a total of 25,000 new home loans for May, but the actual number of loans fell short of that number. This was the lowest number of loans approved since the Bank of England series started in 1993. At the beginning of 2020, over 70,000 new loans were being approved on a monthly basis.
While analysts have been found wrong in what they expected to happen for this month, many industry experts say the depressed state of the market shouldn’t be a surprise. There have been numerous reasons cited for this lack of activity including limited property viewings throughout May and a delay in home loans being approved.
Hansen Lu is a Property Analyst at Capital Economics who has spoken about these figures, saying; “The latest fall isn’t a sign that the market is struggling to recover. Rather, it probably reflects the gap in the sales pipeline, from when the market was closed between March and May. With households confined to their homes, there would have been far fewer sales than usual moving to the mortgage approval stage in May. Also, many buyers with half-completed sales have been renegotiating on price, which also points to a delay in the sales pipeline.”
There are hopes the market will recover soon
Lu also believed lending will improve in June, related to the level of demand for property and agreed sales in the UK housing market.
Mark Harris is the Chief executive of SPF Private Clients, and he said; “Covid-19 has had a devastating impact on the mortgage and property markets, so it is no surprise that lending was weak in May, with approvals for house purchase falling. With lockdown meaning that lenders were unable to send valuers out to physically view properties, the number of mortgages approved fell considerably.”
Information provided by the Bank of England indicates consumers continued to pay off their debt in May. This is a clear indication the COVID-19 pandemic has led many households to take a cautious approach to their finances.
A total of £4.6bn of consumer credit was repaid in May, which follows on from £7.4bn worth of payments in April and £3.8bn worth of payments in March. Credit card lending payments totalled £1.8bn and overdraft spending amounted to £2.8bn.
Anyone looking for guidance in the mortgage market, or who wants to minimise the time it takes to find their best option, should speak with a trusted adviser. Arranging a chat with a professional is the starting point in finding a mortgage which is suitable for your current needs.
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