As usual in our marketplace, there is always something to speculate on. What will the future bring and how might lenders choose to act in terms of product choice, rates, lending and credit appetite, etc, tends to be an open question at any given time, especially from the advisory sector when we’re looking for a steer on what might happen next.
These are interesting and tricky times – transactions levels are currently very strong but in pricing, for example, there have been suggestions from Moneyfacts that ‘an era of low rates’ is over: based on future COVID planning, potential defaults and other economic twists and turns.
I don’t agree, at least not in the short-term at least – lending targets for banks and building societies do not go away, nor do the anticipated income and profits from mortgage lending become unimportant. Lenders will understandably still be managing rates and business levels carefully – as they always have done.
Those anticipating new lending appetite to turn quickly into a move up the risk curve by lenders, moving back into the high LTV areas they vacated post-lockdown, are likely to be sorely disappointed.
Not least because, what the market is hearing particularly from mainstream lenders – is that there aren’t any ‘business volume pressures’ to necessitate much change in terms of more relaxed lending criteria or more attractive rates.
Anyone active in the market will be under no illusion about just how difficult the March through May lockdown period was, and there are of course continued operational challenges being faced by many businesses, particularly lenders.
But what has also been clear, is the strength of activity that resulted post-lockdown which has continued right through the Summer, with the anticipation being that this may not fall until the end of quarter one 2021, when the stamp duty holiday is likely to end.
It looks likely therefore that anticipated 2020 lending volumes are going to be met and – even with the COVID-19 disruption – the original forecasts for business, which would have been estimated during the latter part of last year, now seem perfectly achievable again, despite the Spring lockdown.
In my view, the status quo is likely to remain for the rest of this year, and we shouldn’t anticipate any significant changes in either product availability or rates as a result.
Clearly, this isn’t brilliant for advisers, or for those clients with higher LTV product needs. The facts of the matter are that, unless specific lenders want to attract more market share, they won’t feel the need to manage rates downwards or to return to broader product terms including higher LTVs.
It means that we’ll see a continuation of what has become the norm in higher LTV areas – lenders managing tranches, limiting access to mortgages during a defined period, perhaps only a couple of days – and then withdrawing those products at a designated time. Again, it can be frustrating for advisers seeking access to those mortgages but we should not anticipate any change from lenders’ modus operandi here for at least the rest of 2020 in my view.
If there are changing circumstances where lenders might feel more comfortable in returning to a pre-COVID-19 normality, such as the introduction of a vaccine, lenders may of course change tack. That said, the operational challenges facing lenders remains a serious constraint – unless there is a widespread return to processing centres or substantially better tech solutions.
The return to higher LTV and materially higher new business volumes for lenders, looks more like a 2021 focus…if at all. Because many lenders may not be looking to replicate this year’s lending levels next year, especially if a vaccine doesn’t look likely until mid- to late-2021, or indeed the UK experiences a challenging Winter with a spike in cases, more local lockdowns, greater numbers of Government prevention measures, etc.
The market commentators seem to think that many lenders will be seeking to replicate 2019 business volumes for 2021, being a shade less than the likely 2020 outturn.
You can see that this being the case; it doesn’t lend itself to huge changes in lending strategy, distribution or activity during next year – quite the opposite in that lending policy is likely to persist for most of the period with a review of what is possible, after the stamp duty holiday ends. Presuming it is not extended, which is not entirely out of the question.
Therefore, the short-term outlook looks to be ‘more of the same’ – we should all be grateful. After all, it’s remarkable that despite many months of serious COVID-19 impact, we now have a mortgage market which is at least as vibrant and promising as it was in February, when nobody had heard of ‘social distancing’ and most of us didn’t own face masks.
Rob Clifford is Chief Executive of Stonebridge
When you are applying for a mortgage it can be hard to understand all the terminology and abbreviations. Here is a guide to some of the more common words you will come across.
Provided to you by a lender, confirming ‘in principle’ what they will allow you to borrow. This can be provided to agents and sellers to show that you can afford their property.
APR means the Annual Percentage Rate and APRC is the Annual Percentage Rate of Charge. These are both used to compare the overall cost of a mortgage. APR compares the cost of the mortgage for the initial fixed period (for example, the first two or five years) whereas the APRC is the overall cost of the mortgage should you pay it for the full term of the mortgage period (for example, 25 year term). A broker would use these to recommend the best mortgage, based on the initial term and the overall term and make their recommendation based on this information.
Automated Valuation Model, also known as a desktop valuation. The lender instructs their preferred surveyors to confirm the value of the property without the need to physically go to the property. Surveyors will base their valuation on recent sales and other recent valuations. You will not receive a copy of the valuation if an AVM is carried out.
Lenders will often charge an arrangement fee to set up your mortgage. You can choose to pay this up front or add the arrangement fee to the mortgage. If you choose to add the fee you will pay interest on the fee over the term of the mortgage. Your broker will compare products with and without fees and recommend the best deal for you.
If you do not pay your mortgage on the date that has been agreed each month, you will fall into mortgage arrears. Should you not be able to pay your mortgage for any reason, contact the lender immediately to discuss your circumstances.
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