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Residential Mortgage Market Current Climate 2020

2020 has been a very strange one for many different reasons, not just the COVID-19 pandemic but all of the many ways it has impacted businesses and lives. UK Industries that were thriving, suddenly ground to a halt due to lockdown restrictions. The UK property market has experienced a very unusual journey since the Government first announced the lockdown which started in March 2020.

How Lockdown affected Residential Mortgages

The restrictions effectively meant that houses could not be bought or sold, no viewings could take place and estate agents’ offices were not open to the public. The property market came to a complete standstill, awaiting news of when lockdown restrictions would be lifted. It was estimated that 450,000 buyers’ and renters’ plans were put on hold during this period.

The construction of new builds was also put on hold for a while, where social distancing was not possible, so this put a big delay on the exchange of contracts for new build properties. So, while nobody could buy homes, the residential mortgage market naturally had little demand until lockdown restrictions were lifted again.

However, even in the early days of lockdown, a search trend appeared; there was a big increase in people searching for properties outside of city centres and busy towns, looking for homes with more space and gardens. The impact of being confined to their home for such long periods had clearly given a lot of people some thinking time and a need to have more space. Cities and towns had also emerged as the main hotspots for Covid-19 cases, so this could also be a factor in the increased house hunting outside of these areas.

Post-Lockdown in the Property Market

Once the restrictions lifted in May 2020 and viewings could take place and properties could be sold again, the market started moving forward with deals. What really helped get the property market back on track though, was the Government’s announcement to introduce a stamp duty holiday.

From 8 July a temporary reduced rate of stamp duty land tax was brought into effect, with first time property purchases of up to £500,000 having no stamp duty to pay at all. This gave a lot of people the opportunity to make a house purchase that they would not have been able to afford without saving up to factor in the stamp duty rate.

While this was a great catalyst for house purchases, the fact that the UK was about to go into recession and many people were facing reduced furlough wages, and the possibility of future redundancies, many lenders had to adjust their lending criteria, in some cases requiring bigger deposits due to the increased risk they faced.

Mortgage lenders quickly had to react to the unprecedented situation they found themselves in, with mortgage holidays also being introduced, which left many lenders receiving considerably less in mortgage payments in 2020.

After having a lull in application numbers during lockdown to process, there were suddenly lots of applications coming through but some lenders did not the same staff levels to deliver the work, which slowed that aspect of the market down slightly. But the biggest problem post-lockdown for lenders was to re-work their lending criteria to try and curb the expected risks that lay ahead with the UK economy crash.

COVID-19’s Impact on UK House Prices

After the mini boom of house sales when lockdown restrictions lifted, there has been a lot of buoyancy in the property prices. In October, it was announced that the average asking price for properties hit a record high and record numbers of mortgage applications have also been recorded. This was due to the combination of the stamp duty holiday and the catch up after lockdown, added to with more people looking to move out of cities and towns.

The Bank of England base rate reduced to 0.10% in March and this impacted the interest rates of loans including mortgage loans. The market has seen mortgage rates hit as low as around 1.28% for the applicants who are moving home and that meet the lending criteria. First Time Buyers are also seeing better interest rates. Average rates for 2-year fixed mortgages sat below 1.5% throughout the first half of the year but there has been an upturn since.

So, for First Time Buyers, with the stamp duty holiday and very low interest rates, it has been a very opportune time to get onto the property ladder, at least for those who have not been negatively financially impacted by Covid-19. However, they may have found it harder to get a mortgage now though, with the stricter lending criteria that has been introduced.

It has also been a good time for people looking to sell their property and downsize, as they are generally getting a value for their property that is much higher than it would have been 12 months ago. So, where people are selling a more expensive property to buy a lower value home, this has been a good time to do so with the house prices being high but the opposite applies for people buying a considerably more expensive property than their existing one.

100% Mortgages Re-introduced

For the first time in a long time, mainstream mortgage lenders have started to re-introduce 100% mortgages to help those looking to buy a property but who don’t have a deposit. However, the first types of these mortgage that are available do require a temporary deposit to be put down by parents or another person for three years, to protect against the risk associated with a fall in house prices.

House Price Crash Predictions

The current high property values that are being achieved will not last and property experts are expecting a crash in house prices at a point in the near future, as these are exceptionally high values we are seeing right now as well as high numbers of sales. In September, sales agreed was up 70% compared to 12 months previous, while October’s figures are looking closer to a 58% increase on last year.

The market is also running at a very fast pace right now with sales going through really quickly and this doesn’t look like it is going to slow down just yet. Recently, estate agents have also noticed that many sellers are becoming overly optimistic about the asking price, as they have heard about record high sales.

With unemployment at 4.5% for June to August 2020 and more redundancies expected from businesses that are not recovering as quickly as they need to in order to keep their workforce on, this will soon have an impact on property sales because less people will be able to get mortgages.

As well as unemployed people not being able to buy a property, many people will be worried about potentially losing their job in the future and therefore will not take on the risk of getting a mortgage, choosing to rent instead.

Many property experts are looking at the 2008 property crash to try and predict when this one will happen, however the circumstances are clearly very different. Brexit would have triggered changes to the residential mortgage market but the Covid-19 pandemic shook the market up before that came into the picture.

The timeframe that many experts are suggesting the crash will happen is around the 12-18 months mark, so towards the end of 2021 or going half-way into 2022. The stamp duty holiday is due to end in March 2021 and this should see a big slowdown in property purchases.

Another factor that could come into play is whether the UK will go into lockdown restrictions again that put house sales on hold. Wales announced their 2-week lockdown starting on 23 October 2020, which includes estate agents closures. England has not yet announced a similar approach, choosing local lockdown restrictions without impact to house sales at this point.

Is Now a Good Time to Apply for a Residential Mortgage?

For many people, the stamp duty holiday and low interest rates make this a really good time to buy a house. However, house prices are very high but have been falling since July. First Time Buyers looking for properties at the lower end of the house price range should be able to buy a property without the value being too inflated. They should calculate the amount they can save through the stamp duty holiday and the lower monthly mortgage payments that they can now apply for, to see whether it is worth waiting for house prices to drop again.

Working with a leading whole-of-market Residential Mortgage Broker such as UK Mortgage Broker, we are able to cut through the minefield of lender offers, limitations, max LTV’s and special requirements to find the best residential mortgage offers for not only First Time Buyers, but also experienced Residential Mortgage owners

Another consideration is the extension to the Help to Buy Scheme which gives home buyers the opportunity to benefit from financial support for buying new build properties.

How to get the Best Residential Mortgage Deals

If you are looking to take advantage of the current stamp duty holiday and buy a property, you may find that the high street lenders have much stricter lending criteria right now and you might benefit from using a Residential Mortgage Broker instead who can provide you with truly independent and impartial Residential Mortgage Advice.

A mortgage broker can help you to find the best deal to suit your specific circumstances, such as your income, any outstanding debt, adverse credit history or any other detail that can make it harder to get a mortgage such as being self-employed.

A whole-of-market Residential Mortgage Advisor has access to mortgage deals that you would not be able to find directly, often with exclusive rates to save you money over the term of the mortgage. They also take the hassle out of searching through tons of different mortgage deals and can help you to prepare your documents and other requirements to make sure the mortgage goes through without unnecessary delay. With the stamp duty holiday ending on 31 March 2021, it is important to get the process going as quickly as possible, so Contact Us today to speak with one of our Specialist Residential Mortgage Advisors and get started on finding your perfect mortgage deal.