Earlier this week, the housing market was given some good news from Rightmove, data from which shows that online house searches have already returned to pre-Covid-19 levels. According to Twenty7Tec, purchase product searches have also overtaken remortgages for the first time since the lockdown started.
It’s encouraging that following two months of lockdown, many buyers are still eager to press ahead with their housing plans. These customers will need the support of a vibrant mortgage market to help them move forward and a critical area of lending which we are yet to see lenders return to is in the higher loan-to-value mortgages that are vital for first-time buyers.
From my conversations with lenders across the industry, there is definitely an appetite to return to lending at above 90 per cent LTV. These are higher margin areas for many lenders – and the figures show that the FTBs who tend to seek higher LTV products were a driving force in the mortgage market up until the lockdown. In January, data from Yorkshire Building Society showed that the number of people stepping onto the housing ladder for the first time was at its highest level since 2007.
Lenders are also able and willing to continue to offer higher LTV solutions in specialist areas of the market. Building societies are currently active in the market – Leeds Building Society, for instance, is continuing to offer a 95 per cent Shared Ownership product while Cambridge Building Society, amongst others, is still offering 90 per cent and 95 per cent mortgages.
Another consideration is that a lack of options to enable buyers with a low deposit could become a downward pressure on the wider market. A key concern facing the housing market is the impact of the Covid-19 crisis on house prices. If high LTV customers such as first-time buyers are not able to access suitable mortgage products, activity will drop off in crucial segments of the market, which could then become a factor which depresses prices due to lack of demand.
So why are we not yet seeing the return of lenders back to high-LTV products?
Operational capacity remains an important issue. These are uncertain times and lenders are still focused on ensuring they can support existing customers as a priority, while simultaneously reopening to meet the demand for new lending. All the indications suggest that lending will open up once lenders are comfortable with increased volumes.
After two months of lockdown, the housing market is starting to reopen. More than 370,000 house purchases have been on hold, according to Zoopla. This will include thousands of mortgage applications that lenders will need to progress quickly. Many lenders are taking a cautious approach of reassessing borrowers’ incomes in these backlogs in light of significant numbers of furloughed workers. This is work that will take time to clear and the signs of pent-up demand I outlined earlier will also be on the minds of providers, alongside ongoing enquiries about payment holidays.
This backlog extends to valuations too. As I set out last week, the mortgage market faces around three more weeks before the 60,000 or so valuations delayed by the lockdown are cleared. When it comes to house prices, some commentators believe we could see a fall of between 5 per cent to 10 per cent, and it is understandable that lenders will likely want to have a clearer picture here before returning to high-LTV lending.
First out of the gate
The return to high-LTV lending is also a case of who is willing to step forward first. Speaking with stakeholders, it’s clear that there is uncertainty and concern about being the first mover in this market and subsequently being inundated with requests.
The Covid-19 crisis has changed everything and while we are seeing signs of pent up demand, lenders are being responsible and taking the reopening process step by step. Perhaps part of the reason why we have not seen a swift return to higher LTV lending is that lenders are still eager to understand the true levels of demand in this sector of the market. The data on FTBs during the ‘Boris Bounce’ were certainly strong, but it’s not yet clear how much of that demand still exists. Distributors and advisers will be key in helping to explain the demand out there to lenders and, where we can, we should look to offer insight.
There are indications the market is moving in the right direction. Just yesterday, Accord and Virgin announced a return to 90 per cent lending. This is a move that will be welcomed by many and I suspect we will see more providers moving back into this market soon – if the market and economy are stable enough. Beyond that, the next step for lenders will be reaching back up to 95 per cent to open up more options for young buyers still planning their first home move. Let’s keep our fingers crossed this can happen sooner rather than later.
Kevin Roberts, director, Legal & General Mortgage Club