The road to recovery
“Will it all quickly come back into action or will confidence take time to return?”
Previous economic downturns often had phases of shock, denial and acceptance characterised by people’s words and opinions. We believe that opinions are important, but more so when they are based on hard data. That’s why we have been busy providing data over the past eight weeks to allow all our stakeholders to make timely decisions in a tightening market.
This morning, the Secretary of State for Housing, Communities and Local Government, Robert Jenrick, fired the starting gun on the housing and mortgages sectors’ recovery.
So, quickly, before the doors are flung wide open, let’s revisit what has happened over the past two months.
23 March – Lockdown announced
The market took a huge hit when lockdown was announced. Overnight, volumes of searches for all types of mortgages dropped off a cliff. Within just a couple of weeks, the total volume of mortgage searches of all types was down by around 75% on early March levels.
At this time, three-month mortgage payment holidays were announced. Today, one in seven UK mortgages are currently on payment holidays. It’s quite a staggering feat to have created this option at short notice and have it deployed at scale. Never again will people be able to say that great change can’t happen at pace.
If we step back for a moment, it’s worth considering that this arrangement has meant people being able to get through the past few months and, in many cases, to continue doing so over the coming months. Mortgage holidays combined with furlough payments and other repayment holidays have all played their part in the economy stumbling not falling.
April – activity levels at a low point
Purchase mortgages were particularly hard hit. They normally form around 55-60% of the market volumes (compared to remortgages’ long-term average of 40-45%). That’s no surprise given that people began to struggle to get valuations or even view properties in person. Government rules, combined with a genuine fear for health, meant that the pipeline of property sales simply dried up.
Within days, products that were most attractive to first time buyers in early March were understandably removed. There was a market mismatch between the volume of demand at 90/95% LTV and the volume of products on offer at the right rates at that level. Lenders were willing to do business, but at much higher interest rates than borrowers were unaccustomed to seeing. Completions dropped.
Overall, the volume of products available also went down by around 60/65% as lenders adjusted their positions. Specialist lenders, and second charge lenders in particular, took a breather from the market: central rate drops weren’t matched or matchable in their products. Money markets were priced in higher risk and so the cost of funds for these lenders went up. Again, there was little or no meeting of supply and demand.
Remortgages, however, held up well. Over the past eight weeks, they have performed at around 80% of prior activity levels. And, yes, they took a small dip over the past 10 days or so, but we believe that that is mainly down to Easter, good weather and people considering their next financial move.
One final theme for this period was that new builds continued to sell as they were always capable of desktop valuation, but their stock wasn’t being replenished. The rapid acceptance of desktop valuations across large parts of our market has been another change that was believed to be ‘too hard’ just a few weeks ago. It’s hard to say if this particular genie will go back in its bottle as our industry continues to have an occasionally illogical and emotional attachment to the seeming comfort provided by physical valuations.
We began reporting pockets of recovery in our daily and weekly figures at the end of April and beginning of May. Purchase volumes began to nudge up. Buy-to-let formed a larger proportion of searches as buyers sought value. Remortgage volumes remained pretty high in comparison.
And then, today, the Minister’s announcements.
So what happens next?
Will the recovery be V shaped?
The first thing to say is that we will now issue data again on a daily basis so that people can make the right decisions for their broker and lender businesses. We continue to believe that well informed people make better decisions, and we’ll continue to help others base those decisions on real time data.
The second thing to say is that the shape of the recovery will depend on how the pent-up demand expresses itself. Will it all quickly come back into action or will confidence take time to return? Figures from Zoopla and others quoted by Jenrick have hinted at up to 450,000 transactions on hold.
One proxy signal is how people feel about their children returning to school.
On the one hand, there’s the official position and date announced last Sunday by the Prime Minister. On the other, there’s the feeling among a lot of parents that they won’t do anything to jeopardise their children’s wellbeing. Nobody really knows how it will go as of 1 June, but two weeks’ time feels like a long way away at the moment.
As it is for schooling, so it may well be for the housing market. Estate agents can open their doors again this morning, viewings can resume as can physical valuations. But again, a lot of demand will depend on consumer confidence, which is as much emotional as it is logical.
Some people will ‘need’ to move or remortgage. Some will prefer to stay put and hem and haw until they see others go first.
Next, we believe that there will be significant regional variances as waves of infection come and go; with some regions potentially entering partial lockdowns again. Combine that with newspaper stories of people looking to relocate to the country, and we believe it will be a nuanced and very complex picture over the coming weeks.
What does this mean for lenders and brokers?
There are some opportunities for products in the market for the brave. First-time buyers and buy-to-let both have demand volumes that need products. Lenders who are looking at our data can see the mismatches and compare with their own risk profiles and make well-informed decisions.
This morning, we’ve seen news stories of lenders such as Bluestone returning to the market. We believe that no matter the shape of recovery, we will begin to see more products in the market as sentiment improves.
Brokers can use our data to look at where demand sits. Which groups are likely to proceed with their applications and have them approved? Where are they focusing their efforts? The data helps inform your choices.
The UK’s economic recovery is inextricably linked to the economic success of our sector. I hope that you and your people stay well and safe and that, together, we can begin to help the economy recover.