Market Update (end of October)
The effect of Mr. Sunak’s stamp duty holiday is still going strong, particularly when many buyers are trying to squeeze in before the deadline that is creeping round the corner. Not only are we seeing this at Mortgage Advance with the sheer number of applications for mortgages and new enquiries, but we notice how there are still so many lenders who are still unable to cope with the volume.
Nottingham Building Society are still not accepting any new mortgage applications on both residential and buy-to-let. Cambridge Building Society are still not accepting any new broker/advisor registrations to submit new business. Platform are taking 20 working days just to instruct the valuation. One of the main problems that we are seeing that borrowers face is the service levels from lenders, and it’s become a very important factor to take into account when remortgaging or purchasing. The likelihood of not completing in time has become a new norm, especially with solicitors also struggling in the chain of the mortgage process.
Is the housing market overinflated?
Nationwide has stated that house prices have increased at their fastest rate in 5 years, reaching a record high in October, indicating an annual growth of 5.8%, and prices jumping by 0.8% month on month this year.
In September, the Centre for Economics and Business Research predicted that house prices will fall by almost 14 per cent next year, with property values expected to start falling “significantly” towards the end of this year.
The temporary nature of the stamp duty holiday means that the short term effects could be even more dramatic, as people rush to complete transactions before the return to the previous stamp duty regime at the end of March 2021.”
Russell Galley, managing director at Halifax, said there is plenty of uncertainty surrounding the housing market’s outlook, adding it is “very unlikely that the housing market will continue to remain immune to the economic impact of the pandemic and we believe that significant downward pressure on house prices should be expected at some point in the months ahead.”
International estate agency Hamptons International has a similar prediction. In its September forecast report, it expected housing prices to rise 2.0 per cent in 2020, bu to stagnate in 2021.
Aneisha Beveridge, head of research at Hamptons International, said: “The real challenges won’t be felt until 2021. The economic consequences from the Covid-19-induced recession will pull the housing market from its long-term growth trajectory. While some economic recovery should have taken place to cushion the withdrawal of government support, we still expect the housing market to slow next year."
As the end of the furlough schemes ends, with the possibility of another national lockdown, combined with the unemployment rate still increasing, it is also a likely possibility to see buyers withdraw from transactions in early 2021 if they can’t complete before the deadline.
Self-employed people being treated less favourably in the mortgage industry
Self-employed applicants have taken a much harsher hit from lenders compared to employed applicants. This week nationwide would only lend a maximum of 85% to self-employed but would allow up to 90% for employed applicants.
Natwest last month introduced a new affordability calculator that was aimed only for self-employed applicants with lower income multiples compared to employed applicants.
More lenders are requesting for a minimum of 6 months bank statements for the self-employed compared to 3 months or 1 month for the employed.
It would be fair to say that not all self-employed people are the same and it wouldn’t necessarily be accurate to categorise a whole group as higher risk when there are still good numbers of self-employed people who were not affected financially by Covid-19. This is particularly the case for those not in the leisure, travel or events industry. For example industries including healthcare and construction have seen a boom, and many financial consultants and advisors also work for themselves.
Greg Stanworth, managing director at Greenacre Financial Services, said it was unfair how some lenders are now comparing pre and post-lockdown for the self-employed through bank statements and not taking account of how these workers are paid.
He also argues that requesting for 6 months bank statements pre and post Covid is not an accurate reflection of whether someone is “back to normal.”
Although there are certainly a fair share of lenders out there who continue to commit to lending to self-employed people on a case by case basis, most of them at the moment tend to be more specialist lenders with higher rates.
Charles Morley, director of mortgage distribution at Metro Bank says: “Metro Bank has been a long-standing supporter of the self-employed sector and we continue to offer a significant number of new loans to self-employed borrowers.
“Our mortgage underwriters work on a one-on-one basis to consider every applicant’s individual personal circumstances, to ensure that any customer taking on debt has the ability to meet their financial commitments now and in the future.”
Rate movements
There is a mixture of movements we have seen at Mortgage Advance. Nothing that can be generalised. How rates are moving in one lender is a reflection of many factors on their own part, e.g. how they see the market currently and how they anticipate it to unfold, their own experiences with applications going in, and for some to manage the volume levels as examples.
On the higher LTV product range, TSB are one of those lenders who have increased their rates quite significantly including for first time buyers, by up to 80 basis points. At 80% LTV the 5 year fixed rates are now 3.44% when two weeks ago it was 2.74%. Similarly their 85% LTV 5 year fixed rate is now 3.64% when two weeks ago it was 2.44%.
A TSB spokeswoman said: “These changes are part of our regular review of our products to ensure we’re able to manage our service levels and support the demand from our customers.”
On the other end of the spectrum, Barclays and HSBC are those high-street lenders who have been reducing their high LTV rates. The difference is not as big as TSB’s but an improvement none-the-less. On Friday 30th October, for residential purchases and remortgages, the rate for the two-year fixed at 75 per cent LTV has gone down to 1.57 per cent from 1.79 per cent while the equivalent at 85 per cent LTV, has been reduced by nine basis points (bps) to 2.83 per cent.
Grass looking greener for the Buy-to-let market
Landlords will be pleased to know that over the past month lenders such as Foundation Homeloans, Landbay, Precise and Barclays to name a few, have introduced products and criteria that favour them.
In July this year, Barclays paused lending to Portfolio landlords however, they have now returned. Their unique stress test which is solely based upon personal affordability gave a big advantage to those with high incomes but wish to purchase a property whereby the rental stress test didn’t fit with many other lenders.
Lenders such as Keystone and Precise have introduced “Limited edition specials” or “Autumn specials” that are competitively low rates for 75% LTV BTL. Keystone offering a 5 year fixed rate at 3.39% (available to limited company and personal ownership) allowing the rental to be stressed at the payrate. Precise had decided to reduce fees for their Tier 1 range to 1.25% in their special product range.
Phil Rickards, head of BM Solutions, observed the buy-to-let market remained resilient and the latest findings showed positive sentiment towards the private rental sector remaining high, despite the pandemic.
“The number of small landlords who anticipate their lettings business to be negatively impacted by the pandemic continues to fall, showing maintained stability of the buy-to-let market,” he said.
Fleet Mortgages distribution director Steve Cox and One Savings Bank sales director Adrian Moloney both agreed there was no need to panic for the buy-to-let sector at present.
And the trio of lenders suggested that 2021 should be a good year for business in the sector even after the stamp duty holiday deadline.
Adrian Maloney, group sales Director at OneSavings Bank emphasised earlier in the month that there were 3 main reasons for landlords to be optimistic.
1. Profit levels Despite the challenges faced by landlords as a result of Covid, 87 per cent of them still generated a profit in Q2 – the highest level of profitability since the end of 2018. The average rental yield has also increased to 5.8 per cent, up 0.5 per cent from Q1’s historic low, and the highest point for more than a year. Landlords with between 11 and 19 properties generated the highest average yield, at 6.6 per cent.
2. Expansion in BTL activity expected
Of survey directed at Interemdiaries conducted by Click2Check and Cherry revealed 57% of brokers have experienced a surgey in buy-to-let purchase demand in recent weeks. The proportion of landlords who say they intend to buy in the next 12 months increased by five per cent in Q2 to 17 per cent – the highest level for around four years – while the number of landlords who said they’ll reduce the number of properties in their portfolio has fallen to a three year low of 17 per cent.
3. Greater rental yield outside of London, particularly up north. Landlords with properties in London continue to struggle however, up North it is evidenced that rental yields are performing well. Fifty seven per cent of landlords in the North West said they were experiencing very strong or strong tenant demand, closely followed by 56 per cent of landlords in the South West, 53 per cent in the West Midlands and 52 per cent in Yorkshire and Humber. Landlords may be better off exploring other areas of the country they might not otherwise have considered to get better value for money to their portfolio.
It is good to know that it is not all doom and gloom. Any rates and statements stated in this article are strictly there for illustrative purposes and do not indicate for any advice. It is advised that you contact a mortgage broker to ascertain the most up-to-date lending criteria and product rates available to you.
Sources:
Knowledge Bank broker updates
Subscription to Moneyfacts magazine