Over the last few weeks, the total number of mortgages available has decreased significantly as the vast majority of lenders retrenched following the emergency rate cuts by the Bank of England last month. Some sources estimate that over 40 percent of all mortgage products have been withdrawn since the start of the Covid-19 coronavirus crisis.
As a result, most new lending has been either been put on hold, or only available to those with sizeable deposits or equity of 40 per cent or more in order to reduce lender risk. This had led to many lenders withdrawing many rates for those who require higher loan to value (LTV) products.
The news yesterday that higher LTV mortgages are being reintroduced by some lenders was met with optimism by the property and financial services sector alike, who were quick to suggest this signals that lenders remain keen to assist borrowers wherever possible and underpin consumer confidence moving forwards.
It’s probably worth contextualising why, in a period where few people are considering moving, movements in the mortgage market are so significant.
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As James Tucker, CEO of mortgage technology provider Twenty7Tec explained: “The ratio of purchase mortgages to remortgages over the long term is approximately 55 per cent to 45 per cent. At the moment, we’re seeing a significant reversal of 30 per cent to 70 per cent in favour of remortgages.”
James continued: “Over the last few weeks, we’ve seen this ratio drop as low as 80 per cent to 20 per cent as the home moving market has ground to a halt, so our data this week which suggests a slight movement upwards in terms of purchase mortgages is a huge leap forward. However, we still have a long way to go in order to get back to the ‘normal’ position of higher volumes of purchase mortgages than remortgages.”
As is always the case even in a normal market, the majority of new lower product rates released yesterday are reserved for those with higher levels of available capital, but there are new deals available for those with lower deposits as well.
For example, high street bank HSBC has confirmed that it has reduced rates on a number of two-year tracker products. It’s now offering a 2.09 per cent rate for those who require a 90 per cent LTV, and for those seeking a 60 per cent LTV mortgage, the rate drops to 1.39 per cent, with all two-year tracker products also benefitting from no early repayment charges.
This will help many borrowers who were otherwise having to suspend their remortgage or purchase mortgage application for the moment, as Surveyors are unable to visit a property to conduct the necessary checks for mortgage purposes unless it’s vacant, due to the current lockdown measures.
Santander have confirmed that they have increased the maximum loan size from £350,000 to £500,000 on all residential mortgage products, with two and five-year fixed rate products available for those requiring up to a 75 per cent LTV mortgage. For example, Santander are now offering a two-year fixed rate at 1.44 per cent at up to 75 per cent LTV, with a five-year fix, also up to 75 per cent LTV now available at 1.59 per cent. Both products have a fee of £695, and early repayment charges do apply.
But perhaps most significant of all is the gradual reintroduction of higher LTV products which may assist both first time buyers who want to take the opportunity over the next few months of any cooling in prices, and existing borrowers who need to remortgage at the moment, yet who have a lower level of equity in their property.
The Melton Mowbray Building Society has relaunched its 90 per cent LTV products, again taking advantage of automated valuation models in order to avoid the need for a physical valuation of the property by a Surveyor, providing the property meets the criteria required.
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As one of the few low deposit mortgages currently available, this could offer some borrowers a much-needed lifeline. There are significant numbers of first time buyers who have purchased with a low deposit within the last two years, yet who haven’t benefitted from an uplift in property values to increase their equity. As their current mortgage products expire, some customers may find themselves in the position of having to remortgage, otherwise their monthly repayments will increase as their mortgage reverts to their lender’s standard variable rate.
Lea Karasavvas, Managing Director of Prolific Mortgage Finance observed: “Often in times of crisis it is the mutual building societies that are truly in their element and come to the fore. The use of mortgage brokers to unearth these lenders to the public is key, as they are integral to keep the market moving forward and the likes of Melton are hidden gems that really should be applauded.”
In terms of the gradual reintroduction of higher loan to value products by high street lenders, Lea observes, “This is a much-needed shot in the arm for the mortgage industry and borrowers. We find ourselves in unchartered territory at present and the last few weeks have seen most lenders take stock of the situation and map out how they intend to get through this.”
“HSBC have remained a constant throughout the current situation, keeping rates competitive and utilising automated valuations at higher loan to values than many of their competitors from the very beginning.
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“They have been one of the go-to lenders throughout this entire crisis and should take immense credit for the stability they have managed to sustain during these troubled times.”
Lea concluded: “To also see powerhouses like Santander taking swift action by increasing loan sizes and enhancing the use of desktop valuations so quickly is a sign of the green shoots of recovery that has been needed.”
While rumours swirl in the media that estate agents may be amongst the first businesses to be allowed to re-open when lockdown measures are potentially eased in May, the home moving market is mostly in stasis. However, the requirement for many thousands of homeowners to remortgage can’t be held in abeyance.
In the days and weeks ahead, further movements from lenders indicating that they remain ‘open for business’ and offering competitive rates for the majority of borrowers, not just the lucky few with high levels of capital, are likely to be warmly welcomed by mortgage advisors and customers alike.
Follow Louisa on Twitter: @louisafletcher