Private Finance's Weekly Mortgage Memo - 24th August 2020
This is our take on news in the mortgage market 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:
- The start of a winter of discontent for buy-to-let market
- Demand in the mortgage market levelling off
- Return to 85% LTV in the buy-to-let sector
The start of a winter of discontent for buy-to-let market
Landlords have not had a great time of late and the second half of the year is looking like it will be increasingly difficult. Rents in London are falling dramatically (Zone 2 rents down 8% alone in asking price since February 2020 according to Rightmove), and have levelled off outside of the capital with a slight increase of 0.6% on July last year across the UK as a whole (Home Let Index). Whilst the market saw huge demand following the relaxation of lockdown restrictions there is some shocks on the way. Firstly, there is the ban of evictions ending on the 20th September (following a recent extension by the Government and a new 6 month notice period until 31st March 2021), landlords whose tenants have been unable to pay rent will now have to go through an even lengthier eviction process if necessary, and when you also include the finding of new tenants could see them very much out of pocket. Moreover, with the furlough scheme ending at the end of October we could see large scale redundancies with the potential for a higher rental void and further evictions. Lastly, with Brexit on the horizon demand could be further affected with less Europeans relocating to UK cities. All these factors could lead to increased supply, further depressing rental prices and all creating a winter of discontent for landlords… especially in London.
- The upcoming eviction of tenants en masse in the midst of global pandemic will see a great deal of negative publicity – ultimately we believe this could put off new entrants to the market, even with the potential savings from the Stamp Duty Holiday.
- Mortgage rates are rising, and we expect this will be the same for buy-to-let mortgages again potentially discouraging entrants to the market.
- With the housing market going through an unexpected spike in demand and prices up 3.8% this year as of July 2020, we may see landlords sell their investment properties to avoid the potential difficulties moving forward.
- Whilst there is optimism in the housing market in general, we believe we will see a decrease in demand for BTL products in the coming months.
Demand in the mortgage market levelling off
June and July were our busiest months on record, and this also spilled over into August, following this spike created by the Stamp Duty Holiday in combination with the ‘re-opening’ of the housing market. However, demand now seems to be levelling off with enquiries for mortgages for purchase down in July so far this month.
- This unprecedented situation created a unique set of circumstances making it appear as if it is business as usual in the housing market, however the uncertainty in the economy and the housing market never went away, and we may see the market readjust itself to reflect the new economic reality over the coming months.
- With the fallout from the end of the furlough scheme, potential second coronavirus waves, the spectre of Brexit on the horizon and the end of Stamp Duty Holiday all in a matter of months you would have to be a bullish or foolhardy investor to think prices will continue rising.
- This levelling off of demand will enable lenders to catch up with the back log of cases and get back to some semblance of normality in the coming weeks, in terms of processing times.
Return to 85% LTV in the buy-to-let sector
Despite the difficult times being faced by landlords, one lender, Vida Home Loans, is making a cautious return to the higher loan-to-value space for buy-to-let mortgage products offering 85% LTV products.
- The higher LTV segment of the market is in a state of flux currently, both for buy-to-let and residential purchases, and the rates are correspondingly high reflecting the uncertainty in the market and the potential for significant falls in property prices.
- As with the 90% residential lending market we expect lenders will offer products for a short time and be inundated with applications and withdraw them relatively quickly.