Private Finance's Weekly Mortgage Memo - 15th March 2021
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.
- Increased deposits and the Covid pandemic
- Private Banks increased flexibility at £5m + loan amounts
- The importance of protection insurance: lessons from Covid
Increased deposits and the Covid pandemic
We have seen many clients recently reporting increased deposits due to Covid, a stark contrast to many who have had their savings depleted and set back potentially years due to not earning or earning less during this period. These largely white-collar workers whose jobs have simply moved to the home have been able to save significantly more than they otherwise would without the pandemic and combine this with the SDLT holiday and they have a greater degree of affordability. We recently had a couple who pre-COVID had a 13% deposit and were waiting to buy midsummer 2020 when they would have a 15% deposit. Due to COVID they waited until now to buy a property and have reported due to not having train fare, holidays, and a London social life they have been able to save up an extra 5% deposit to help with their purchase… What does this mean in real terms? They want a 5-year fixed rate for security, they are buying at £550k and if they had a 15% deposit the rate would be circa 2.71%, they have a 20% deposit so now can borrow at circa 2.0%, a 0.71% saving for 5 years! On the £440,000 loan over the 5-year period they will save over £15,000…
- This highlights how and why prices rose so fast last year aside from simply the high levels of demand in the market. People were saving vast amount of money during lockdowns and also able to settle other debts and the like and combine this with the savings from SDLT meant people could afford more in terms of their properties.
- Low interest rates over the last year, benefitting those with larger deposits also contributed to this demand.
- Unfortunately, the pandemic will further entrench housing inequality in the UK, even with the strong economic recovery that is predicted. Moreover, the mortgage market reflects this polarisation with some borrowers contributing to the billions of pounds of mortgage debt that was paid off last year while others requiring mortgage holidays to get by.
Private Banks increased flexibility at £5m + loan amounts
We have recently been informed of a major private bank’s increased appetite for lending above £5m loans and the additional flexibility they are going to put in place at this level, with bespoke offerings for the right clients. At this level despite the large amount of debt, private banks can be both very flexible and offer some extremely good interest rates.
- This appetite for high value lending highlights how confident the banks are in the economic recovery and the high-value property market.
- This raises an interesting question… Why do some wealthy individuals like mortgage debt when they could afford to own in cash? Ultimately it comes down to the cost of borrowing and the potential that money has to otherwise generate income. We have we have private clients on sub 2% rates borrowing millions on their homes and investing it through their wealth managers returning 7%+ in a lot of cases, so they borrow as they are willing to take the risk and build their wealth, especially in such a low interest rate environment…
The importance of protection insurance: lessons from Covid
We have unfortunately had a couple of enquiries of late from those who have had a partner pass away unexpectedly due to Covid without provisions in place for their outstanding mortgages. This has meant that they are unable to afford the mortgage payments or unable to remortgage to the amount required and thus, are forced into selling their homes or stuck on a lenders high standard variable rate. This is not a nice situation for anyone, let alone when you are suffering from a bereavement. Whilst lenders can accommodate you to a degree for a period time, selling may be your only option in this scenario.
- Covid has led to many of us considering our own mortality and it is important to remember that there are lots of unexpected things that can happen, and we hear many case studies from our protection team in this regard. Whilst life insurance is not a requirement for a mortgage, we cannot stress how important ensuring you have some form of protection is…