The housing market tells two distinct stories
Home-owners with equity to speak of and would-be first time buyers are having particularly different experiences of the housing market at the moment. Cash-rich borrowers have access to mortgages seemingly getting cheaper by the day, whilst those who are trying to buy their first property with small deposits have very few options, if any at all.
General economic uncertainty brought on by the pandemic and rising unemployment has seen 95% loan-to-value (LTV) ratio deals being withdrawn from lenders’ offerings. Some 90% deals are still available, but the increased deposit requirements has seen the plans of first time buyers who have been saving and expecting a different deal, scuppered. Finding thousands of extra unexpected pounds simply isn’t a possibility for many.
Not only are 90% LTV deals thin on the ground, but since March they have become expensive. The appetite to lend to buyers with a 10% deposit, or less, is no longer what it once was. According to an analysis by Moneyfacts, where there were 779 products available at 90% LTV in March of this year, by June there were only 56. We must also ask the question of whether those who can afford these deals want to take the risk of falling into negative equity should inflated house prices fall once the stamp duty holiday comes to an end in March of 2021.
Should a buyer choose to take on one of the few available mortgages, they don’t come cheap. Before the first lockdown the average two-year fixed rate mortgage at 90% LTV had an interest rate of 2.57%, that figure has risen to 3.76%, making the deals less attractive. It’s a different story, however, for homeowners who are looking to remortgage, or those who can put down a 40% deposit or equivalent equity. It’s possible for people in this position to find lower interest rates than were available before the pandemic. If you’re in the market for a 60% LTV mortgage on a two year fixed-rate deal, before the first lockdown you would have been looking at an average rate of 1.8%, this has subsequently fallen to 1.77%.
As the picture of the future stability of the economy and the longer term impacts of Covid-19 on the housing market become clearer, perhaps these stories will change.