Private Finance's Weekly Mortgage Memo - 2nd November 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:
- Second lockdown and the mortgage market
- A competitive “green” mortgage… finally
- LTV restrictions for self-employed borrowers
Second lockdown and the mortgage market
With infection rates spiralling across the country a second lockdown was always an inevitability, however this time the property market is not going to be shut down as in March. However, the question remains how many people are going to be out and about viewing property given the circumstances? Ultimately, this is likely to entrench the current trends for those looking to move to houses with more space, both outdoors and to work remotely, and means areas outside major cities are likely to see higher demand than pre-Covid.
- A second lockdown and the corresponding economic repercussions are exactly why mortgage lenders have been being cautious of late and this is likely to cement this position for lenders going forward. We expect to see further restrictions on borrowing certainly for those with deposits smaller than 20%, with these products almost certainly becoming even harder to find, and those that are available will charging even higher rates to account for the risk.
- The housing boom and corresponding number of mortgages issued has defied the economic reality and given that there does not appear to be a silver bullet currently for Covid we could see buyers taking the plunge sooner, rather than later, benefitting from the Stamp Duty Holiday and looking to acquire a property that will make living in the new normal more enjoyable – keeping the housing boom going in the short term.
- So far the crisis has disproportionately affected younger people, who are more likely to be renters, however as the economic outlook remains highly uncertain, with unemployment now rising across the board, the market will come back to earth with a large shock unless the SDLT holiday is extended in the medium term…
A competitive “green” mortgage… finally
Homes in the UK account for circa 15% of emissions and thus are a key area if we are to become carbon neutral as a nation in the relatively near future. We have been waiting a while for a lender to offer mortgages at a competitive rate to borrowers who are purchasing energy efficient homes, with A and B EPC ratings, and NatWest has just launched a new product doing just that. The rates look generally better than their normal purchase rates and previously lenders only had products like this for quirky green eco builds, help to buy green new builds or were offering cashback after completion for bringing up EPC ratings (but at nowhere near this rate).
- Products like this are essential if we are going to see and increased number of people considering the energy efficiency of their home and it is a good policy to reward those who are benefitting the environment.
- This product is purchase only now, but it would be great to see a remortgage product too, to reward those who since buying their property have increased the EPCs. This would be the natural next step to also reward those already in more eco-friendly homes.
LTV restrictions for self-employed borrowers
More bad news for self-employed borrowers as Nationwide, one of the largest mortgage lenders in the UK, has curtailed LTV to 85%. This combined with the limiting of income multiples and more restrictive and stringent application process, means self-employed borrowers are facing an ever-increasingly difficult position, meaning they can borrow less in terms of the total borrowing amount, require larger deposits and need to prove the viability of their businesses going forward in the face of far higher levels of scrutiny.
- 85% LTV is in effect becoming the key battleground across the board for lenders, for all types of borrowers and for the most competitive rates you need even deeper pockets and at least a 25% deposit.
- Despite the high number of restrictions there remains a great deal of demand for self-employed mortgages and this is indicative of how much people want to undertake moves at the moment, both to save on Stamp Duty and to improve their homes given the amount of time we are all spending inside at present.