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Industry Insights Series Q2 2020
Catherine Alexander, Mortgage Adviser
The outlook on the mortgage market has greatly improved throughout May and into June, with mortgage enquiries up 57% compared to April according to figures published by Experian. Levels are now back to those last seen in January which is good news for everyone involved.
COVID-19 has caused lots of movement in the market, with lenders initially pulling products in order to protect existing customers as we moved into lockdown. As time has gone on, lenders have come back into the market and have gradually increased their loan to value (LTV) limits which are now generally at 85-90% LTV. Most lending criteria remains unchanged with the majority of lenders accepting furlough payments as income for lending purposes. However, we have not yet seen the return of the higher LTV borrowing at 95% - which is a particularly important product area for first time buyers.
Borrowers looking for a high LTV mortgage should expect 95% LTV mortgage products to start returning to the market as there is more economic certainty. At the moment, it seems many providers have not returned to the market with these products because the number of applications has been so great, and with employee levels still low they need to focus their resources on processing current applications. In the meantime, first time buyers may choose to look at alternative options available to them such as new build properties where they can utilise the Help to Buy scheme or consider shared ownership.
Another piece of good news from the lenders is the increased use of technology that has been employed to keep their processes flowing. Many lenders have reduced or removed their telephone support services, particularly in terms of their communication with mortgage brokers, instead asking everyone to utilise alternative options which include secure messaging and web chat facilities. This increased digital journey is likely to be more prevalent in the industry moving forward, particularly where everyone has had time to evaluate how they would like to work in the future. This includes lenders carrying out more desktop valuations where possible which would speed up the mortgage application process in many cases.
Existing borrowers have also had the option of utilising a mortgage payment holiday which freezes their mortgage payment for 3 months. Although there is no doubt of the benefit to a significant number of borrowers, it is important to carefully consider the impact that this may have have on your current and future plans. Recent market research undertaken by specialist lender, Kensington, reported that around 25% of those who had taken a mortgage payment holiday did not fully understand how it worked and that taking one could impact underwriting decisions in the future.
So, what is predicted to be part of the new normal in terms of mortgages?
- More people will be reviewing what is important in terms of their homes and where they want to live.
- More people will also choose to work from home or work from home more often, reducing current face-to-face communication.
- The use of technology will become more widespread as new digital skills are acquired and systems improved to facilitate distance communication.
- New products launched to provide more variety in the market and a focus on customer segments e.g., COVID-19 heroes such as nurses, supermarket workers, etc.
- An increased awareness of protection products associated with taking out a mortgage e.g., life insurance, critical illness, income protection, etc.
We are happy to see the mortgage market heading in the right direction and look forward to some significant long-term changes, providing more options and opportunities to a greater number of people. If you have any questions regarding mortgages, associated protection products or any aspect of financial planning, please do not hesitate to contact us and we are always happy to talk through your specific needs and circumstances.
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