Key Mortgage Market Trends 2021

Key Mortgage Market Trends 2021

House prices once again reached a new record high last month. The average UK property price is now £261,743, according to Halifax’s House Price Index, up 1.3% from April. Over recent months, buyers have been in a “race for space”, with mortgage borrowing in March at the highest level since records began, according to the Bank of England.

What is Causing the Dramatic Rise in House Prices?

In normal years house prices can rise for several reasons, from a booming economy to increased demand or high inflation rates. But what has caused this steep increase in house value this year?

The Impact of Coronavirus Lockdowns

It feels like there has been no end to the impact the Covid-19 pandemic has had on our lives. Since last March, people have had to spend more time in their houses than ever before. This has caused a shift in the types of accommodation and locations people want. With the potential to work from home for the long term looking more likely for many, buyers are looking for bigger houses with space for a home office.

Gardens have also become top of many people’s priority list, as those living without any outside space suffered immensely during lockdowns, with restrictions meaning that many could only leave their house for exercise for one hour a day. With outdoor space being increasingly important and more people working remotely, there has been an increased demand for homes in rural locations.

First Time Buyers & Government Initiatives

Since the start of the pandemic, Chancellor Rishi Sunak has announced an array of government initiatives to help “turn generation rent into generation buy”. From changes to shared ownership, plus the new help to buy equity loans and mortgage guarantee scheme. Just this week, the government has announced their “First Homes” initiative, giving up to a 50% discount on houses to local first-time buyers and key workers.

On top of this, multiple coronavirus lockdowns have led to an increased number of the younger generation, who have been living with parents finally seek their own houses, having realised the need for their own space.

Stamp Duty Holiday

One of the most significant announcements Rishi made during the pandemic was the stamp duty holiday, which he then extended by six months. This tax relief has added to the increased demand for houses, as buyers rush to purchase homes before the deadline.

What Impact Has the Increased Demand for Houses Had on the Number of People Looking for Mortgages on Price Comparison Sites?

The value of gross mortgage advances in the first quarter of 2021 was £83.3 billion, 26.5% higher than the same period the year before, according to the Bank of England (BofE). The outstanding value of all residential mortgage loans was also up 3.6% compared to the year earlier.

Demand for mortgages has been incredibly high over the past few months, with house purchase mortgage approvals at 82,700 in March. Whilst lower than November’s peak of 103,100, the BofE still described this as “relatively strong”.

But has this huge demand meant that more people use comparison sites when looking to purchase or remortgage?

The graph below shows the total traffic on the primary mortgage page of the top 5 comparison sites over the past two years.

Key Mortgage Market Trends 2021

The most significant change to the traffic for mortgages on comparison sites was in May and June of last year; in these months, mortgage borrowing was still reasonably flat. However, over this period, interest rates on mortgages hit a record low, which could mean that several consumers were comparing mortgage and remortgage rates.

On top of this, in May, Chancellor Rishi Sunak announced an extension to the mortgage payment holidays. By this point in the first lockdown, several consumers were struggling financially. Many not being able to work due to coronavirus restrictions. Comparison sites are likely one of the places where homeowners would look for financial advice.

Another peak in the traffic was in March of this year; according to the BofE, this was a significant month for mortgages, with record borrowing levels. However, November 2020 had significantly high mortgage approvals, which is not reflected in the traffic.

Whilst comparison site traffic does tend to change slightly, in line with overall mortgage trends, most consumers mainly use them for research, looking at current mortgage rates. Mortgage brokers remain the most common way buyers purchase mortgages, even for those who prefer online services, with the increasing popularity of online-only mortgage brokers such as Habito, Trussle and Mojo.

One key reason for most consumers using brokers over comparison sites is the number of leading offers available. Research from Which? in 2019 showed that 42% of mortgage offers were only available through brokers.

Also, the mortgage deals available to consumers are often dependent on an individual’s financial situation. The amount available and the interest rates on offer can change depending on income and deposit amount. Many comparison sites do not necessarily consider this and show the same offers to everyone, whereas brokers tend to show offers best suited to a buyers situation.

Some comparison sites have chosen to partner with mortgage brokers, like GoCompare, who use Mojo to provide offers to customers which suit their individual needs.

What Does the Future Look Like?

There are mixed feelings about the future of the property and mortgage market, with some believing that we are headed towards another housing market crash in the next few years. House prices are rising far faster than wages, making houses more and more unaffordable, with many experts warning that this is unsustainable.

However, the main reason that house prices would fall would be if supply began to outweigh demand. This could happen if the current low-interest rates for mortgages start to rise, making borrowing more expensive. Additionally, in the unlikely event of a sudden and enormous influx of new houses; the increase in the availability of properties would drive house prices, and therefore borrowing down.

It’s also thought that there will be a decrease in demand when government schemes begin to end, such as the stamp duty holiday, which has been a major contributing factor to the current housing market boom. Plus, as life begins to return to normal and an increasing number of people decide to return to the office, there may be less demand for properties in rural locations.

On the other hand, many experts say that whilst the rise in property prices and demand for mortgages may slow; it will not necessarily “crash”. This is because whilst there could be a decline in the need for new properties, the housing market will remain a viable option for investors.

Many experts are reminding us that there is usually a reason for housing market crashes, Sarah Coles from Hargreaves Lansdown told the independent:

“Crashes tend to be precipitated by something specific that causes a crisis in confidence. During the financial crisis it was the fallout of irresponsible mortgage lending; in 1990 it was sky-high interest rates and then unemployment.”

With unemployment rates beginning to recover from the impact of the pandemic, and the economy starting to gain traction back toward pre-pandemic levels, things remain hopeful for growth in the housing market.