Private Finance's Weekly Mortgage Memo - 10th August 2020
This is our summary of news in the mortgage market over the last week that we thought was particularly interesting. Our views are often cited in several national publications, including; BBC News, The Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of key trade publications, so this should keep you ahead of the curve. If you have any questions on any of these stories, or would like further information, please do not hesitate to get in touch.
At a glance:
- 90% loan market recovering slower than expected amid further restrictions
- Lenders make products less attractive to deal with surging demand
- Lenders tighten credit scoring
90% loan market recovering slower than expected amid further restrictions
We are seeing the high Loan to Value (LTV) market recover slower than expected, partly driven by borrowing at this level becoming more expensive. Lenders are increasing rates and imposing tougher restrictions. Bank of Ireland, for example, have just withdrawn their fixed-rate 2-year offering meaning some will have to take longer-term products to secure finance at this level. Platform have also without warning withdrawn 90% altogether again.
- These restrictive measures are actually designed to help higher LTV borrowers. Lenders are expecting property prices to dip in the short to medium term, which may lead to more borrowers being in negative equity
- Whilst this all feels counterintuitive given house price rises reported in July, high levels of uncertainty in the economy continue to persist, causing lenders to remain cautious.
Lenders make products less attractive to deal with surging demand
The property market and the economy are neither here nor there right now… Despite a sharp rise in unemployment looking ever more likely and a severe slide in economic output levels, we are seeing huge demand for properties – the biggest purchase and financial commitment most people make in their lifetimes. This huge demand is causing some lenders, including major high street banks, such as Santander, to increase their rates to make products less attractive.
- Lockdown and the changing nature of work has put peoples’ homes at the forefront of their minds. It is no longer just a place to eat and sleep. Now, it is an office and an entertainment and leisure space, all causing people to reconsider the type of property they want
- Raising the Stamp Duty threshold and the release of pent-up demand are the main contributing factors driving up sales. However, the question is: how long will this last? From our perspective, we have not seen the traditional summer drop in demand for mortgages, far from it.
- Borrowers will be more comfortable with higher rates in part due to savings from the changes to Stamp Duty charges and lower property prices in the short term.
Lenders tighten credit scoring
We are seeing lenders tighten their credit controls, especially on residential mortgages but some also with buy-to-let products. This is particularly the case on higher LTVs, although not limited to these products. Lenders are even declining basic cases based on borrowers not meeting their new restrictive credit criteria. Borrowers with good, bad and no credit history are being impacted.
- This is further evidence of the cautious approach lenders are taking at the moment and we are seeing a lot more cases being declined due to faulty credit profiles
- We think it will be a long time before lenders return to pre-pandemic lending criteria, especially given the high levels of demand
- It also shows the importance of maintaining strong credit histories, something which young people should be made more aware of.