As we move at a frightening pace towards mid-2021, it feels as if the market has been fully vaccinated and built up at least a short- to medium-term immunity against any signs of ailment.
There are, as always, some exceptions to the rule, but many credible commentators are reporting a range of positive indicators such as year-on-year growth in house prices of up to 10%.
The market seems to be obeying the government’s ‘levelling-up agenda’ as we are seeing positivity in regions across the UK, with London showing a more subdued ownership and rental experience.
The housing sector has remained unpredictably strong since the second half of 2020 and doesn’t appear to be slowing. This unexpected but welcome demand is fuelled by buyers reappraising their work and life needs and the suitability of their home to meet these needs.
The market is driven by an imbalance in supply and demand, with sellers certainly in the driving seat.
Mortgage funding
Levels of growth are being underpinned by the availability of mortgage funding. Those lenders that took a customarily cautious view of the potential negative impact of the pandemic find that their caution was pessimistic and therefore have been able to release more funds to support mortgage lending.
After an uncertain 2020, lenders will be keen to capitalise on a more stable environment in 2021. Mortgage lenders are openly competing by returning to 95% loan-to-value (LTV) product ranges, which is increasing price competition further down the LTV curve at 90%.
However, it is not good news for everyone. A growth spurt in the market can exacerbate affordability issues, particularly for first-time buyers (FTBs) — often referred to as the lifeblood of a sustainable market. Similarly, while lenders are returning to higher-LTV mortgages, many unfortunately have differential policies for buyers of new homes, which are often the preferred purchase for an FTB. By offering lower-LTV mortgages only on new-build properties, lenders are exposing their concerns around concentration risk, new-build premium and sustainability of price and demand.
First Homes scheme
The public sector is certainly playing its part by making the popular Help to Buy Equity Loan scheme eligible only to FTBs in England and Wales; the scheme is due to end in 2023. A small pilot of the First Homes scheme is also under way in England whereby FTBs can buy a new-build home with a discount of at least 30% of the market price. The essential need and demand of FTBs can be easily demonstrated by a similar scheme from the Scottish government, which was oversubscribed in just five days.
The UK government has also introduced a Mortgage Guarantee Scheme to encourage lenders to offer higher-LTV mortgages — concerningly, participating lenders do not intend to include the new-build market in their plans yet.
The private sector is also looking to provide solutions to address affordability for buyers and build confidence for lenders through risk-sharing schemes. The housebuilding industry is driving these commercial initiatives, with both the Deposit Unlock and Market Mortgage [correct name?] schemes gaining traction. These welcome initiatives are designed to provide market solutions in a post-Help to Buy world in 2023. We will hear more on them in the coming months.
In conclusion, the market is showing balance across the UK. Reported high house-price inflation when measured year on year reflects the extraordinary conditions of 2020 and therefore longer-term comparisons may be more indicative of real trends. Mortgage demand is high although affordability remains an issue for many.
The market needs to show more stable characteristics to ensure fairness, longevity and sustainability.
Mobeen Akram is national new homes account director at Mortgage Advice Bureau
