Business as usual for the reopened mortgage market?
There was good news for anyone buying or selling a house, or working in property, on 11 May when the prime minister announced that the housing market would be reopening for business just two days later.
With lockdown measures being gradually eased, it was time for the 373,000 property sales (according to Zoopla) put on hold during the crisis to progress.
Amendments to regulations mean people can now visit estate agents and view residential properties, while surveyors and valuers can undertake physical inspections.
So it’s business as usual… or is it?
Despite widespread doubts about whether the UK is coming out of lockdown too soon, the announcement was good news for the mortgage market.
Lockdown rules had put a stop to valuations and surveys, causing property purchases to stall. Some lenders turned to automated valuation models, but these couldn’t be used for high loan-to-value purchases or certain types of property.
As a result, lockdown saw the number of mortgage products available at high loan-to-value ratios drop sharply. Analysis by Which? found there were 294 two-year fixed rate mortgages available up to 90 per cent LTV on the market in March, but just 24 in May, a 92 per cent reduction.
Meanwhile, Moneyfacts found that the number of mortgage deals on the market fell from 5,222 at the start of March to 2,566 in May, a drop of 51 per cent.
But within a week of restrictions being eased, the mortgage market started to show signs of life. Valuers returned to work, albeit under a new set of rules.
For example, valuers working for Shawbrook Bank must now ensure occupants vacate the property before inspection. Surveyors are also obliged to wear personal protective equipment and maintain social distancing.
Meanwhile, several lenders including Yorkshire Building Society, Accord and Ipswich Building Society restarted lending at high LTVs.
According to Rightmove, the lifting of lockdown restrictions prompted many would-be buyers to resume their property search. The property portal claimed visits to its listings jumped 45 per cent, while email enquiries to agents rose by 70 per cent almost overnight.
Rival portal Zoopla was equally optimistic. It claims its UK Cities House Price Index found pent-up demand has exceeded levels recorded pre-lockdown at the start of March.
Government advice states that all physical viewings must now be limited to members of the same household and open house viewings are not allowed. Potential buyers should avoid touching surfaces, wash their hands regularly, and bring their own hand sanitiser.
Vendors have been told to open all internal doors and ensure surfaces, such as door handles, are cleaned after each viewing. Sellers are also advised to vacate their property while viewings are taking place. Obviously all parties involved in a visit must not have any Covid-19 symptoms.
Your Mortgage Decisions director Dominik Lipnicki says some pre-lockdown transactions are now beginning to complete – but not without issues.
“We are seeing lenders reassess cases, especially for self-employed and furloughed borrowers, with many lenders insisting that letters from employers are provided guaranteeing the job post furlough. Unsurprisingly, many employers are not willing to provide such documentation,” he says. “We are also seeing lenders asking not just for accounts from self-employed clients, but recent bank statements to show their business is still viable and profitable.”
Lenders have differed in their approach to furloughed income, with high earners arguably being affected the most. Under the government’s job subsidy scheme, employers could temporarily lay off staff with the government paying 80 per cent of their wages up to a maximum of £2,500 a month for three months initially (the scheme has now been extended until October).
Private Finance mortgage consultant Chris Sykes says many lenders have restricted criteria around furloughed income, commission and bonuses. Most lenders will only consider furloughed workers’ reduced salaries, as opposed to their usual annual salary.
“This means previously well-remunerated professionals – and those whose pay is heavily weighted towards bonuses in particular – who are currently furloughed and have large mortgages will struggle to remortgage,” he says, “They may be forced to go on to their lender’s standard variable rate while they wait to get back up to full pay before remortgaging. They may have to undertake a product transfer with their current lender. Around 7.5 million workers are on furlough. This is going to cost a lot of people a lot of money.”
In some transactions, it’s not the mortgage lender reassessing the situation, but the buyer. Zoopla found that 41 per cent of buyers said they have put their plans on hold, citing market uncertainty, loss of income and diminished confidence in future finances as deterrents.
It’s too early to tell exactly what impact the coronavirus will have on house prices. Savills, for example, has offered two different predictions depending on the coronavirus outcome. Its first forecast predicts a 5 per cent drop in prices this year and a 5 per cent rise in 2021. But its second scenario forecasts a more dramatic 10 per cent fall this year and a more modest 4 per cent rise in 2021.
In its interim financial statement, Lloyds Banking said it has been working on the assumption prices will fall by up to 5 per cent this year, before recovering by 2 per cent in 2021.
“What we have seen was a pausing rather than collapse of the housing market,” says Lipnicki. “That said, many potential buyers are waiting to see what, if any, price adjustment will occur due to the crisis before proceeding with a planned purchase.”
Buyers are understandably nervous that they may be buying something that will be worth less by this time next year – and no one can be sure if they are right to be worried.
Buying agent Henry Pryor says he had four deals at the conveyancing stage when the UK went into lockdown, with all four having now either fallen apart or been renegotiated. He expects agreed prices to fall by between 5 and 10 per cent by the end of July.
“I’m not advocating renegotiation, as I think that, psychologically, sellers will respond badly to this,” says Pryor. “Better to withdraw and apologise that you can’t go ahead on the terms that were agreed in February, and to wait and see if they come back to you. It’s working so far but, of course, some sellers don’t have to accept these new prices.”
Where sales are agreed and go ahead, moving day will have some new challenges. The British Association of Removers has pointed out that the nature of removal work means workers would be unable to comply fully with social distancing measures, and so its members must take all appropriate measures to mitigate any associated risks.
In its guidance on house moves during the pandemic, the government recommends that households should try and do as much of the packing themselves as possible. However, price comparison site GoCompare has warned DIY home movers to check the insurance implications of this.
“While most home contents policies cover home moves, a common requirement is for items to be professionally packed,” says GoCompare chief executive Lee Griffin, “If you’re due to move, we recommend that you contact your home insurer well in advance of the moving date to let them know of your plans.”
There is also the ongoing issue that the advice for anyone classed as “vulnerable” or who has symptoms of coronavirus remains the same – they should self-isolate. Inevitably, if someone in a property chain is self-isolating, completing the transaction will be tricky at best.