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Private Finance's Weekly Mortgage Memo - 12th October 2020

This is our take on recent news in the mortgage market. 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:

  • Significant down valuations occurring
  • The new normal: More rate increases and product withdrawals
  • Why “Generation Buy” 95% mortgages will not stop prices falling

Significant down valuations occurring

Recent figures published by Halifax show that the property market is defying gravity, with the average price reaching a new record high of just shy of £250,000, with properties worth 7.3% more on average than they were a year earlier, the biggest year-on-year rise since June 2016. However, in certain instances we are seeing highly significant down valuations of circa 20%, despite these increasing asking prices. For instance a 4 bed house in a west London suburb was under offer at £700k but the lender instructed valuation came back at £550k, a flat in a Surrey commuter town under offer at £265k but the valuation was £210k and a final example of a flat in a highly desirable area in Zone 2 London was down valued from £500k to £410k – all these down valuations are around the 20% mark (21.5%, 20% and 18% respectively) and are all different property types, house, modern flat and ex-local flat illustrative of the fact that it is not just flats without outside space for instance that are facing this issue. It is quite possibly the case that valuers are being told by lenders to be cautious, but it does come as no surprise that these down valuations are circa 20% and borrowing above 80% LTV is becoming increasingly restrictive and expensive, with lenders withdrawing products in this bracket altogether…

  • OUR TAKE: Borrowers are put in a difficult position when down valuations of this magnitude occur and they can either negotiate a lower sale price from the vendor, find a large amount of cash and borrow less to continue the purchase or try and change lender and hope for a better valuation which given the current processing time scales could add multiple weeks to the process. Ultimately, if you are told the property you are looking to purchase is worth 20% less will you want to proceed unless it is your absolute dream home and you are not looking to move for a very long time if ever…
  • OUR TAKE: This also presents an issue for existing mortgage holders if they are looking to remortgage if their property is getting down valued it may mean they get stuck with their current lender having to Product Transfer as there only option which relies on an indexed valuation.
  • OUR TAKE: As yet this is not happening across the board, but is indicative of why lenders are being cautious and highlights that some believe a significant fall is on the horizon despite the increasing prices and demand in the market…

The new normal: More rate increases

This week again we have seen rate significant rates increases from lenders including at lower LTVs, for instance 2 and 5 year fixed House Purchase at 60-75% LTV from TSB have gone up by up to 0.40% and Virgin Money have increased their core residential products at 75% LTV by 0.35%.

  • OUR TAKE: Rate rises and product withdrawals are becoming the new normal and we expect this will remain the case especially with huge amounts of uncertainty in the market and the realistic prospect of a second national lockdown.
  • OUR TAKE: Whilst rate rises at higher LTVs has become the norm, they are creeping down to lower LTV levels – to get the best rates in the market you need to have a very significant deposit at this point…
  • OUR TAKE: Mortgage rates are going up across the board and this could begin to put the brakes on house price increases in the coming month…

Why “Generation Buy” 95% mortgages will not stop prices falling

The Government desperately need to get the economy moving and are implementing all the usual economic measures, printing more money, continuing with infrastructure projects, loaning to businesses and underwriting wages and will seek to relax banking and borrowing regulations… Under these 95% mortgages the government would take on some of the loan risk and banks would be able to reduce criteria so more of these loans get granted. While this may seem like good news for those looking to get on the housing ladder without a large deposit, is it really given the propensity for a huge fall in prices and the possibility of negative equity?

  • OUR TAKE: Ultimately, prices will rise if this scheme is implemented, and thus people will want to move for the fear of it getting more expensive even if the market is increasing disconnected from the economic reality… as these prices rise people believe the market is entirely sound and continue to buy until prices reach new highs and the economic downturn catches up and well, we know what happens next…
  • OUR TAKE: These 95% mortgages with current uncertainty without huge backing from the Government would be very expensive to account for the high-risk nature of the proposition and thus may not be for everyone…

Private Finance's Weekly Mortgage Memo - 12th October 2020

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© Private Finance Limited, 2020. Private Finance provides independent mortgage advice and arranges individual mortgage solutions for clients. Private Finance is a trading style of Private Finance Ltd, 29 Lincolns Inn Fields, London, WC2A 3EG, registered in England no. 3855776 and its Appointed Representatives. Private Finance Limited is authorised and regulated by the Financial Conduct Authority (FCA registration number 310566).

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