We find ourselves living through an unprecedented time with Covid-19 having a profound impact on our personal and work lives. It’s also demonstrating a major shift within the housing and mortgage market and we’ve yet to see what the true long-term impact could be.
Within our lifespan, this global crisis is like nothing we have ever known. The pandemic has exposed us to a new way of living and we’re steadily learning how to adapt to the current environment, or what you’ve probably heard described as the ‘new normal’.
The big question is what will Covid-19 and its aftermath mean for the mortgage market? Although no one has a crystal ball, it is worth looking back at what has happened and how the market has responded so far – and what this means for you.
The mortgage market reacted incredibly swiftly to the Covid-19 pandemic. Many lenders either pulled high loan to value products (LTVs) or withdrew from the market completely to help protect their existing customer base. There was also the need to arrange, process and manage mortgage payment holidays for customers who had requested one.
Social distancing and a nationwide lockdown meant that physical viewings were suspended, bringing the housing market to an abrupt standstill. To get things moving, some lenders introduced non-physical valuation methods such as an ‘automated valuation model’ (AVM) and as the market begins to adapt to a change in the government guidance, we are slowly seeing mortgage lenders in England reintroduce physical viewings whilst upholding social distancing rules. However, throughout all of this, one large and integral part of the industry has remained intact and that’s the remortgage market.
Regardless of a homeowner or landlord’s circumstances, when they get to the end of a fixed mortgage term, they’re usually going to be looking to see if they can remortgage at a cheaper rate. As they’re already in the property, and likely to have built up a level of equity, they are less likely to be as reliant on high loan to value mortgages as say, a first-time buyer. Nor are they likely to be as impacted by not being able to have a physical valuation so even in the current climate, a remortgage is one of the few areas of the market that can more or less proceed as before the Covid-19 crisis.
House prices have understandably taken a hit. However, that does not mean to say a drop or stagnation is something to look upon negatively. Given the change in the current market, properties will now be more affordable for some people, such as key workers whose income has not been impacted by the pandemic, particularly those that are first-time buyers, those with larger deposits or those looking to buy later this year.
In light of Covid-19, the government is in talks with housebuilders about extending the Help to Buy scheme, which is otherwise due to end in March 2023. An extension would help to kickstart activity again and provide certainty to housebuilders as the lockdown measures ease. This makes total sense given what market trends could look like in the weeks and months to come and extending the scheme would hopefully help the housing market to begin its recovery by improving builder and customer confidence.
There is no denying that restrictions on physical property valuations and the Covid-19 lockdown are affecting market activity and it will take a little while for the market to restart. That said, it has been encouraging to see that mortgage lenders are still willing to lend and despite lower LTVs are trying their best to do so, which is exactly what our industry needs to keep moving during such challenging times.
Here at Kensington, we understand that people may have been furloughed, been asked to take a pay cut or have lost their main source of income. This is naturally going to leave a sense of unease about their current financial situation as people find themselves in situations that are both unpredictable and that they have no control over. At times like this, it may help to get in touch with a financial advisor so that you can discuss your circumstances with someone who’s an expert in their field and can give you a sense of reassurance so that you can make informed financial decisions about your future.
If you have any thoughts you’d like to share then please feel free to email me at vicki.blog@kensingtonmortgages.co.uk
Vicki Harris has 20 years of experience working in challenger financial services brands, working across asset management, banking and specialist lending. She is Chief Commercial Officer of Kensington Mortgages, the UK’s leading non-bank specialist mortgage lender.