Last week’s Budget felt like a new dawn for the mortgage market: stamp duty land tax has been extended and tapered, addressing concerns about a cliff edge for the sector, and we now have a mortgage guarantee scheme that’s already been backed by some of the UK’s major banks.
What does the mortgage market need to be thinking about and preparing for as this next phase kicks in?
New responsibilities
The government’s decision to extend the SDLT holiday presents some immediate actions. Legal & General’s research suggests that the homebuying timeline is currently taking as long as 17 weeks.
While the priority will be to support those buyers already nearing exchange to complete, advisers will also need to be counselling potential new buyers that have been given hope by the latest extension.
It’s now less than 18 weeks until the end of June, when the full £500,000 tax holiday ends. Completion for any new customers will be challenging and while some may slip through in time, advising these customers to have a contingency plan in place – namely the funds to pay for any possible stamp duty fees – will be particularly important.
The return to 95 per cent
Last year we saw the number of 90 per cent LTV products fall from 779 in March 2020 to just 88 by December, according to Moneyfacts.
Lenders are already starting to return to 90 per cent with the number of deals increasing by 117 in the first six weeks of 2021, and data from Mortgage Brain shows that total mortgage product numbers rose above 10,000 for the first time since the pandemic started.
However, 95 per cent LTV has remained a greater challenge. The new government scheme could provide an alternative route for new buyers onto the housing ladder. It might equally encourage lenders to get back into 95 per cent, funding the risk themselves.
Importantly, the government scheme will not be restricted to new build, which could be beneficial for getting housing stock moving and giving those with smaller deposits new opportunities in different areas of the housing market.
The new guarantee will not, however, address the affordability hurdles that still prevent thousands of aspiring homeowners from making their first step. Stress testing and LTI limits are major barriers to the FTB market and a fresh look at some of the existing regulation could help the sector to thrive.
However, help with affordability could soon be on its way if we take hints presented in the Financial Policy Committee’s December papers, which implied there remains room for further high LTI lending. An update on the FPC’s view is expected this month.
If we do see more changes, this could again present opportunities for advisers to support FTBs who have been locked out of the market.
It would be prudent for us to keep one eye on the potential for these initiatives to stoke house price inflation, though. We welcome the stimulus in demand, but if we really want to address some of the more systemic issues within our market, we also need measures that will stimulate and increase supply.
The new market
All the excitement from the Budget also comes amidst a mortgage market that is proving resilient. Advisers are clearly busy and at Legal & General Mortgage Club we also continue to experience some of our busiest weeks. In February, year-to-date volumes were 10 per cent ahead of last year (and that’s even taking into account the so-called ‘Boris Bounce’ of early 2020). In January, our SmartrCriteria searches also reached a record high increasing 69 per cent on the previous month.
The signs are also there that the demand and need for advice is set to continue as the recovery begins. Covid-19 has hammered the finances of many individuals and families across the UK. Complexity is becoming the mainstream and more borrowers will need access to advice so they can find the specialist lenders and products that will help them to move forward with their housing plans.
Around ten million people have been furloughed since March 2020 and more than two million self-employed workers have sought support from the government. It’s likely a significant proportion of these individuals will have or need mortgages – there is a huge opportunity for advisers to promote their expertise and deliver better outcomes for these customers.
As we all continue to keep ourselves busy this year, it’s important that we take the time to look after ourselves as well as our customers. Hope is emerging of light at the end of this pandemic tunnel.
Now could be a great time for advisers to think about how they can futureproof their businesses to ensure success. The last year has shown us just how powerful technology can be in our day-to-day working lives. Another Budget announcement around business investment could mean that there may never be a better time for advisers to invest in new systems that reduce unnecessary admin and allow them to focus on what they do best – delivering great advice to customers.
Kevin Roberts, director, Legal & General Mortgage Club
