Private Finance's Weekly Mortgage Memo - 21st December 2020
What a year it has been… this will be the last Mortgage Memo of 2020, so we would like to take this opportunity to wish you a very Merry Christmas and Happy New Year.
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
- SDLT holiday: a tax cut just for the rich?
- Bonus income is back but with one big caveat…
- Will the new restrictions spell the end of the housing market boom?
SDLT holiday: a tax cut just for the rich?
There is no question that the SDLT holiday has provided a stimulus to people to buy property, especially with the added demand created by the major changes to our lifestyles in the wake of the Covid pandemic. However, due to restrictions brought in by lenders those that would have benefitted the most such as first-time buyers and those with low deposits will have missed out and then there are those whose income has been affected by Covid on furlough and the like, and finally those who are self-employed and who lenders severely reduced their product offering too.
- It feels very much that the government will need to extend the SDLT holiday to stop the housing market grinding to a halt in the coming weeks, especially given the far reaching restrictions in place across the country.
- Arguably the holiday will have benefitted those already in strong positions, providing a significant £15k saving to those buying over £500k and enabling landlords to save on restructuring their portfolios for instance.
- Moreover, the holiday has been a contributing factor in significantly driving up house prices this year, despite the economic turmoil and thus even with the holiday first-time buyers are in an even more difficult position than they were previously. Aside from the support the market needs in the coming months, given the aforementioned price rises, it seems fair that an extension is put in place for those who have not been able to take advantage of the holiday through no fault of their own.
Bonus income is back but with one big caveat…
As has been widely documented, several lenders severely curtailed their lending both on income itself and on the types of income they would consider of late and one area hit hard was that of bonuses and commission. However, a lender who had previously withdrawn this offering, Clydesdale, is now back. Although, with one big caveat and that is that this variable income must have been received after the 2nd of December 2020 to show that borrowers have continued to receive this income despite the challenging economic conditions, and they will only consider up to 60% of the two-year average if paid annually, bi-annually, or quarterly.
- Whilst this is restrictive, it is also understandable given the economic circumstances, especially with recent restrictions coming into force. We think the date should however be somewhat earlier, such as June 2020 as surely a company wouldn’t have given out bonuses at this point if job security was in question due to COVID.
- There are other lenders who will consider bonus income at present, however this, along with lenders returning to higher LTVs, indicates that there has been a marked shift in their confidence in the housing market.
Will the new restrictions spell the end of the housing market boom?
It has been a bad few days for UK, a new Covid strain has emerged leading to London and the South East being plunged into Tier 4, ostensibly full lockdown, we are being shut off from the rest of Europe and the World and we still are no closer to a Brexit deal. Recent figures from the ONS do highlight that house prices have reached their highest level ever with an average of £245,000, with UK average house prices having increased by 5.4% over the year to October 2020, up from 4.3% in September. These figures come after other recent statistics, also from the ONS (14th Dec 2020), highlighting that redundancies have reached record highs of 370,000 in the third quarter of the year and the unemployment rate sits at 4.9% - more evidence that the unique circumstances of the year have led to the housing market being detached from the economic reality. With the end of the year approaching and considering recent events, how long the housing market can sustain this level of growth is a pressing question…
- These new restrictions could further entrench the trends we have been seeing of people moving to properties with more space for working from home and thus having to move away from urban centres, however with the vaccine rollout and (hopefully) things improving from spring the draw of cities will be strong again…
- Lenders are clearly confident in the market outlook, and it could be the case that we see a small fall in demand in the first quarter or 2021, gradually picking up to a very busy 3rd quarter, almost mirroring 2020 and intrinsically linked to the seasonal peaks and troughs of the virus we have already witnessed.