First-time property buyers will be dismayed to learn that their mortgage options are dwindling once again. Coronavirus killed off the low-deposit first-time buyer mortgage when lockdown measures were introduced in March. Now, after tentatively reintroducing 90 and 95 per cent mortgages, several UK lenders have been forced to withdraw them again following unprecedented demand.
Virgin Money and Clydesdale Bank are among the big names withdrawing 90 and 95 per cent mortgages as of this week, citing a surge in applications as the reason. They may not be the last, either: HSBC still have a limited offering of mortgages at up to 95 per cent LTV, but the daily application limit is reached by nine in the morning every day. Anecdotally, potential buyers have reported difficulty in getting a mortgage at all.
There are both positives and negatives to these developments. On the one hand, the sharp increase in applications was only to be expected, with the end of the lockdown releasing pent-up demand. People keen to move into their own home this year are undeterred by dire economic prognoses, which may actually be giving the economy a much-needed boost.
At least trying to go ahead with home moving plans that are right for you at this point in time is a good idea, given that the longer-term economic impact of coronavirus remains unpredictable. Things may get better – or worse, so forging ahead regardless is a reasonable strategy.
On the other hand, it is clear that not all lenders are seeing this buyer confidence in the same light. The latest move to withdraw higher LTV mortgages suggests mortgage lender nervousness: they may be seeing a rise in applications for low-deposit mortgages as potentially resulting in large numbers of borrowers defaulting or needing to take mortgage payment holidays in the future.
Does this mean that the low-deposit mortgage for first-time buyers is de facto being phased out and what can we, as buyers, do? First to tackle the question of these mortgages being phased out: it is likely that lenders are adopting a very cautious approach, trying to stem the flow of applications until the impact on employment levels and borrowers’ finances more generally becomes clearer.
It’s important to stress that a tightening of mortgage lending criteria on a similar scale to the one that was introduced after the 2008 financial crash remains unlikely. Unless we see an economic collapse, mortgage lending will stabilise over time without permanent changes to the lending process.
What can we do as buyers hoping to secure a mortgage right now? Here’s what Money Saving Expert‘s Martin Lewis told This Morning viewers in his Question and Answer segment, reported in this week’s Express: ‘When you apply for a mortgage, [lenders] have to do two checks: credit score and affordability check. An affordability check looks at your income. If you are on furlough right now, and your income is at 80 per cent of what it normally is, then that is your income and what most lenders are looking at. If you are getting funding from the Self-Employment Income Support Scheme then lenders will look at that too.’
He then went on to explain to a particular viewer who was having difficulty getting a mortgage what she could do to increase her chances of getting a mortgage – advice that any buyer needs to heed:
‘What you should do… is go to a mortgage broker. Their job is to have access to the information that we as consumers don’t, about which lenders will give you a mortgage in different circumstances, and which will be cheaper and best for you.’
As for the mortgage broker, follow Martin’s advice to seek help from a whole of market mortgage lender with a good reputation that only takes a fee if they can secure you a mortgage, and one who can find you the very best deal.
It may be wise to see if you can put together a larger deposit, too, which will give you better mortgage rate options too. Lenders’ general preference for mortgage applicants who can put down more hasn’t changed, and it’s always better for your finances in the longer term to take out a smaller loan.