Young homeowners and first-time buyers face being locked out of the mortgage market after banks announced major restrictions on lending to customers with small deposits.
More than 1,500 mortgages have been pulled from sale in the last fortnight. Mortgage lenders including Nationwide and Satander have blocked loans to buyers with deposits smaller than three quarters of the property’s value, while NatWest and Halifax will now only lend up to 80% of a property’s value to new customers. Other lenders have withdrawn from the market entirely, including Vida Homeloans and Atom Bank.
Before the coronavirus crisis, first-time buyers could typically access mortgages worth 90% to 95% of the cost of their new home.
The first-time buyer market was further strangled when the Government blocked valuers and surveyors from visiting properties. Without an accurate valuation, house purchases have been unable to proceed. This disproportionately affects first-time buyers, who typically purchase with smaller deposits. Those further along the property ladder with more equity in their homes can often access mortgage offers without needing a surveyor to value the property.
Mark Harris of SPF Private Clients, a mortgage broker, said it was crucial for the health of the wider property market that first-time buyer lending resumed as soon as Covid-19 restrictions were lifted. Without active support for first-time buyers, other parts of the housing market would also suffer. He said “Once it’s safe to return to physical valuations, it is essential that lenders resume offering first-time buyer loans as quickly as possible because these buyers are crucial to the overall health of the market.”
Figures from Moneyfacts, an analyst, show that mortgage lenders have withdrawn 30% of loans on the market in less than two weeks. Today there are 3,654 loans available to home buyers and remortgage customers, versus the 5,177 that were available on March 19.
Eleanor Williams, of Moneyfacts, said she hoped the withdrawal of low-deposit mortgages would be a temporary measure as banks assess the new risks in the market, such as falling house prices. “With so much uncertainty at the moment, providers seem to initially be focusing on the support that their existing customers may need in the coming weeks” she said.
Despite the restricted choice, mortgage deals have become cheaper since the Bank of England’s two emergency interest rate cuts. The average five-year fixed-rate mortgage rate has fallen from 2.94% at the start of the year to 2.68% today.
However, Mr Harris warned that many would be unable to take advantage of these low rates. He said “Until lockdown and staffing issues at banks are resolved, we are not expecting a return to a ’normal’ functioning purchase and remortgage market.”
[Source: telegraph.co.uk/money, 1 April 2020]
Want to know more? Get in touch!