What is the state of the mortgage market after a year of Covid?

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Like all markets, the mortgage market has not avoided the impact of coronavirus. A year after the start of the pandemic, Wayne Slater from South Liverpool’s Spectrum Independent Financial Services looks at what we can learn from the last 12 months and what can be expected as we move forward.

Wayne Slater, Principal Adviser, Spectrum Independent Financial Services

The availability and variety of mortgage products saw a dramatic decrease throughout 2020. Many lenders withdrew deals from the market when the first impacts of the pandemic were felt in the UK, and the hardest hit were high LTV (loan-to-value) mortgages.

This is because deals that require a 5% or 10% deposit, known as 95% LTV or 90% LTV are considered higher risk for lenders. This left first-time buyers with little choice, if any (depending on the size of their deposit), and those with plans to remortgage with less equity and fewer options.

For existing homeowners on their lender’s standard variable rate, mortgage repayments may well have fallen over the last year. The average SVR on the 1 March 2020 was 4.90%. One year later on the 1st of March 2021 the average SVR sits at 4.41%.

Borrowers may seek to reduce these monthly repayments further by switching to a fixed rate deal, however it is entirely possible that remortgaging in this way could be out of reach for some consumers depending on how their circumstances have been impacted by Covid.

With several government support schemes to help workers and businesses through the pandemic soon to be removed, such as furlough, and the Help to Buy Equity Loan scheme, borrowing options and capacity will inevitably be affected.

Help to Buy Equity Loan Scheme

More than 225,000 buyers have taken advantage of the Help to Buy Equity Loan scheme, and its popularity has soared over time – in the last quarter of 2018 it accounted for over 60 per cent of all new home purchases.

To date it has been available for existing homeowners as well as first-time buyers, but from 2021 only first-time buyers will be able to use it.

The current version of Help to Buy has been extended to 31 May, giving extra time for homebuilders to complete the build and for homebuyers to legally complete and get the keys to their new home.

There will be no more extensions.

The 2021 change will also see regional value caps being introduced. This means that the scheme will only be usable for homes below a certain price, and this ceiling price will vary from region to region.

Stamp Duty

In the recent budget, the Chancellor said housing is responsible for half a million jobs. Therefore, he was extending the current reduction in stamp duty, with the £500,000 nil rate band now applying until the end of June. The nil rate band would then be £250,000 until the end of September, at which point the normal threshold of £125,000 would come back into play.

In the last few months, we have seen an increase in available mortgage products. As of February 2021, there were 3,215 mortgage deals available. In comparison to March of 2020 when 5,222 deals were on the market, it may seem relatively low, however, it is the highest number since and indicates a trend of expanding options.

This display of willingness to lend out higher risk offerings despite the wider economic uncertainty can be viewed as an indication of confidence in the mortgage sector. With Sunak’s budget outlining a government guarantee scheme for lenders as well as extending stamp duty holidays, this too should lead to an increase in the availability of high LTV ratio mortgages.

The mortgage market, as ever, boasts fluidity and if you are interested further in the options available to you, then it is recommended you seek professional advice relating to your personal situation and do not hesitate to contact us if you have any queries or concerns surrounding the topic.

A mortgage is secured against your home.

B1 Business Centre, 25 Goodlass Road, Liverpool L24 9HJ
0151 448 2777 / mail@spectrum-ifs.co.uk / spectrum-ifs.co.uk

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