Private Finance's Weekly Mortgage Memo - 26th 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:
- More restrictions at higher LTVs
- Falling London rents and the BTL mortgage market
- Mortgage enquiries remain stable despite second wave fears
More restrictions at higher LTVs
It is not just restrictions on LTV itself and the higher rates that borrowers at higher LTVs (80% plus) need to contend with – income multiples are being increasingly restricted too. Accord, one of the last remaining lenders offering 5 x income, recently cut their income multiples to 4.49 x income, a reduction that can have a significant impact for a number of borrowers; and with prices higher than ever could mean buyers need to reconsider what type of property they can afford or rethink the location. Barclays did this earlier in the year going from 5.5x to 4.49x and a few others did this during the first National lockdown and are yet to return to pre-pandemic levels
- There are now only two mainstream lenders remaining offering 5 x income and we suspect they will be inundated with enquiries from buyers looking to maximise their borrowing potential.
- Despite the high number of restrictions there remains a great deal of demand at higher LTVs and lenders remain incredibly busy.
Falling London rents and the BTL mortgage market
A recent report from the Guardian illustrated how London rents were falling dramatically compared to the rest of the country, with certain postcodes seeing dramatic falls, for instance Aldgate East (EC3) private rents have falling 34% - no surprise given its proximity to the City of London, which is largely devoid of workers, and on average rents across the capital have fallen 7%. This is only half the picture, as the rest of the UK, bar Edinburgh have seen rents rise, arguably because people are looking to move away from major cities in the wake of Coronavirus. So how has the BTL mortgage market responded? In the first lockdown, BTL was hugely restricted by lenders and it is now almost back to normal for the most part, bar very few high LTV lenders as per the residential market, and less lenders willing to consider HMOs and Student Lets.
- Rates remain hugely competitive and the best 2-year fixed is on par with the best residential rate at 1.19% and that is only available on a remortgage with high levels of equity (although it does come with large fees) – so this tells us that lenders are less cautious about the BTL market given the uncertainty created by Covid and this is a good thing for investors…
- With rents falling and no additional flexibility given to landlords there could be issues for them further down the line, especially those with properties in the capital, as mortgages that were based off pre-pandemic rents, with borrowing maximised, could mean they face major issues when they come to remortgage…
Mortgage enquiries remain stable despite second wave fears
Whilst we are not taking as many enquiries as we were in August when the market was at fever pitch, the major fall we expected has not materialised and demand seems to have plateaued despite the uncertainty facing the economy and second wave long term fears. What is interesting is the way is the in which enquiries rebound following news which one would think would lead to a significant drop in demand, for instance London moving into Tier 2 restrictions – once announced we did see less enquiries but only for a 24-hour period – indicative of the fact that people are getting used to life under Covid…
- The housing market is continuing to defy the odds and economic logic, despite lenders being increasingly cautious.
- The end of the furlough scheme and the potential huge rise in unemployment in the coming months could put the brakes on the market lead to the much-anticipated fall in prices.