Covid-19's impact on the mortgage industry

Covid-19’s impact on the mortgage industry

The coronavirus pandemic has impacted every aspect of our lives, especially our finances. A house is the biggest purchase most people will make in their lifetimes, and mortgages are often people’s largest monthly expense. So what effect has Covid-19 had on the mortgage industry?

One-fifth of UK homeowners unable to remortgage

Over the past year, many household’s finances have been put under severe strain, with many families finding themselves without jobs or with a reduced income from being furloughed. This has left many homeowners unable to take advantage of competitive remortgage deals from lenders.

In a survey by comparison site CompareTheMarket, almost one in five homeowners have been left unable to remortgage their homes due to the impact the pandemic has had on their employment and financial stability. The survey suggests that among those borrowers unable to remortgage, 41% say that their application was rejected because they had lost their jobs. Another 32% say it was because they were furloughed.

In another survey conducted by Legal & General Mortgage Club, over 30% of borrowers affected by the pandemic have said that they are likely to have to move onto their current lender’s Standard Variable Rate (SVR). This could leave households paying thousands of pounds more than they would be if they could get a new fixed-rate remortgage deal, as these are often considerably cheaper than companies SVR.

Of those surveyed, half believed that their decision to take advantage of mortgage holidays would affect their mortgage options in the future, with research suggesting that some lenders will refuse deals where there have been payment holidays on any form of credit, and not just mortgages.

According to the Mortgage club’s research over half of the borrowers who’s income has been negatively affected by the pandemic believe their finances will be looked at with more scrutiny. Whilst many homeowners are unsure if they will be able to find a new deal, lenders insist they are still offering competitive rates, even for those who have taken advantage of government schemes.

Kevin Roberts, director at Legal & General Mortgage Club, said: 

“Even for those borrowers who have seen a reduction in income, there may well be products available that would save them money in the long term when compared to their lender’s SVR. There are still thousands of great fixed rate-deals available, including furlough-friendly mortgages for those who have or continue to draw support from the government’s job retention scheme.”

One in five first-time buyers have seen their deals collapse

Over a fifth of people trying to purchase their first home have seen their purchase fall through since the start of the pandemic; claiming that lenders have backtracked on their initial offer. Almost a quarter of these first-time buyers claim that their purchases collapsed due to lenders lowering the original loan amount during the process.

In addition to these loan reductions, lenders have asked first-time buyers to increase their original deposit size and increased the interest rate first offered.

However, things could be looking up for those looking to get on the property ladder, with the Government’s new budget introducing the mortgage guarantee scheme, set to be introduced next month. This new scheme will allow first-time buyers and current homeowners to purchase homes with a value of up to £600,000 with a 5% deposit. Some of the UK’s largest lenders, including Santander, NatWest and Lloyds have already confirmed they will be offering these mortgages when the scheme starts in April.

Whilst 95% mortgages are not a new product, majority of them disappeared when the effects of the pandemic hit the economy. The chancellor’s hope is that with the re-introduction of 95% deposits, first-time buyers will be able to get onto the property ladder without the need for a large cash deposit. Many property experts welcomed the news of this scheme with Mark Hayward from Propertymark stating:

“A government-backed mortgage guarantee scheme will help first-time buyers get on the housing ladder at a time when for many owning a home seems an impossible dream. This new scheme will go some way in giving some hope to first-time buyers at a time when the size of deposits required means they fall at the first hurdle.”

Stamp Duty Holiday extended

In addition the mortgage guarantee scheme, the chancellor has also extended the stamp duty holiday by three months, whilst also adding a transition period, to smooth the return back to normal. Currently, the property purchase tax has been suspended for the first £500,000 until the end of June, then up until the end of September it will reduce to £250,000 and then back to the usual level of £125,000 from the beginning of October.

The stamp duty holiday was introduced by Chancellor Rishi Sunak in the wake of the pandemic, to boost the property market, which was heavily impacted in the first lockdown, whilst also helping buyers who have taken a hit financially during coronavirus lockdowns.

Residential property transactions are believed to have fallen by up to 50% in the first lockdown, having a major impact on the housing market. The announcement of the tax-relief in July of last year led to an increased demand for properties, with Estate agents Countrywide reporting a 38% in the first two months; the increased pressure on the various parts of the buying process has seen the average timescale of buying a property jump to around 4-6 months.

With increased demands, come increased prices however, and whilst buyers are potentially saving up to £15,000 not having to pay stamp duty, many experts believe this is being reflected in house prices; The Land Registry reported that for December, the price of a property in the UK had increased by 1.2% month-on-month, and 8.5% from the previous year.