Mortgages - Strong foundations?

What is the current state of the mortgage market and what does 2021 hold in store for brokers? Simoney Kyriakou finds out

The second UK lockdown brought with it more pledges to support the housing market.

Prime Minister Boris Johnson stood by his August affirmation that 180,000 affordable homes will be built during the next eight years, as part of a £12bn affordable homes programme, and promoted his ‘Generation Buy’ plans to get people onto the housing ladder.

Chancellor Rishi Sunak’s waiver of stamp duty on properties worth up to £500,000 still stands until 31 March 2021, while the housing minister Robert Jenrick kept the housing market open during the November lockdown.

All this has driven interest. Bank of England data shows mortgage approvals reached their highest level since September 2007, rising to 91,500 in September 2020 from 85,500 in August, while comparison site GetAgent.co.uk has predicted house price growth of 14.5% across the UK by 2024, taking the £233,512 average price up by £33,877. 

This ‘mini boom’ has helped many lenders and brokers to ride the Covid-19 storm well; Lloyds Banking Group reported a return to profitability as its open mortgage book increased by £3.5bn at the end of September. 

John Phillips, national operations director for Just Mortgages and Spicerhaart, comments: “It is a fantastic time to be a mortgage broker. We saw record numbers of applications and exchanges in September.”

There is plenty to suggest the stamp duty holiday has worked, but the number of approvals only show us part of the picture

Increasing demand

High loan-to-value (LTV) mortgages are becoming rare, with lenders offering 90% or higher LTVs for just a few days at a time, before shutting the doors. Some lenders have pulled their highest LTVs altogether, concerned about the UK’s economic prospects.

Brokers are also citing longer processing times. Lenders, lawyers and brokers are still dealing with the 450,000 buyers and renters stuck in the pipeline from March to the end of May, while demand for mortgages is increasing month on month, spurred on by the stamp duty cut. 

Jon Cooper, head of mortgage distribution at Aldermore, says: “Brokers feel they are working to a deadline. There is an urgency to take as much business on as capacity allows to build up fat for the leaner times, which they feel are ahead after the stamp duty relief cutoff on 31 March.

“The vast majority of brokers will be advising their clients that they have a very small window of opportunity to find their new home and start the process, as potential delays loom over the market.”

When it comes to announcements such as Generation Buy, experts have expressed confusion. Richard Rowntree, managing director of mortgages at Paragon, comments: “The Generation Buy announcement left some industry figures scratching their heads – it was heavy on headline-grabbing pledges but light on any information detailing how it would work.

“Support to help people get on the property ladder is positive, but policymakers have a challenge in implementing the scheme in a way that avoids inflating prices rather than solving the ownership issue.”

He urges buyers to consider the portability of the loan, the fact individual circumstances can change, and to be fully aware of affordability. “In short, while the initiative seems like a well-intentioned one, it may not be the best route for everyone.”

Amid this, Andrew Montlake, managing director at mortgage broker Coreco, believes brokers should maintain focus. “The biggest thing is to keep focus and advise their clients in the same way they have always done. 

“What happens to house prices in the short term should not be an issue for most, and trying to play the market is always fraught with danger.”

Future reforms

Will there be future policies in place to help the mortgage market? Paragon’s Mr Rowntree says: “There is plenty to suggest the stamp duty holiday has worked, but the number of approvals only show us part of the picture.”
Therefore, he feels it is unlikely the government will commit to a wholesale reform of the tax. Likewise, Mr Cooper says given the “current record levels of peacetime debt, the chances of stamp duty being scrapped indefinitely are slim”.

However, he does urge the government to review the “hard deadline” of 31 March, to help those buyers who may have exchanged contracts but, because of any pandemic-related delays, may miss the deadline. 

Mr Montlake agrees: “I hope the Chancellor will look at a sensible way of avoiding a cliff edge when the stamp duty holiday comes to an end and Help to Buy changes. 

“There should be a short-extension or tapering, as we are predicting a perfect storm of issues as lenders, brokers, valuers, conveyancers and local authorities struggle to cope with capacity.”

More widely, Mr Cooper feels prospects for business in 2021 are “not encouraging”, with more restrictive Help to Buy rules and fewer ongoing remortgage opportunities for two- and three-year fixed products, as well as Brexit on the horizon.

Covid-19 has certainly presented a challenge: “We might have to destroy some things, rebuild some things and create new things to recover and improve,” Mr Stewart says. 

The mortgage market will be no different.
 
Simoney Kyriakou is editor of the FT’s Financial Adviser newspaper   

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