The final few months of 2020 are now upon us, and despite the ongoing uncertainty, demand in the mortgage market still shows no signs of letting up.
Application volumes are continuing to flow through as customers seek to make their housing plans a reality and lenders are continuing to work their way through record enquiries that are having a knock-on effect on service levels. There are worse problems to have!
With so much uncertainty out there, the question on everyone’s lips continues to be ‘how long can this really last’?
What’s driving demand?
When we emerged from lockdown in May, none of us had any idea how much demand there would be. Yes, there was talk of a backlog of customers who had their homebuying process put on hold over March and April, but no real expectation that lenders would be swamped with the current record number of enquiries.
Forecasters rarely admit to getting anything wrong, but the current buoyancy we are seeing in the market is genuinely ‘unprecedented’. Concerns about the impact of the crisis on lending and house prices are yet to materialise.
It might be easy to pin the market demand solely on the chancellor’s Stamp Duty holiday and to expect a real cliff edge moment when that incentive ends in March 2021. But digging a little deeper there are other factors at play. The long-running Brexit negotiations clearly held some buyers back from purchasing, for instance, and we saw the result of that in the mini-boom the market experienced in January and February.
The pandemic and lockdown have arguably had a role to play as well. Many of us have spent more time actually living in our homes over the past six months than ever before. That has undoubtedly led some to make a significant change, whether that be moving home, location or even changing the person they live with (!).
When L&G conducted research into the impact of Covid-19 on homebuying plans earlier this year, we found that nearly a fifth (17 per cent) of homebuyers (including a quarter of first-time buyers) were now looking to buy in a rural area. People across the country are seeking homes with more space, home offices and gardens, so while the Stamp Duty change might be creating some froth, there was certainly plenty of beer in the glass already.
Covid has affected everyone differently throughout the country. We are all in the same storm, but not the same boat. We are seeing industries such as hospitality and leisure struggling to cope – and lenders, mindful of how the crisis has affected individuals, are taking a closer look at borrowers working in these sectors.
In comparison, borrowers who work in other sectors (such as technology and finance) are less affected by the crisis.
The young have also been hit hard. There are fewer high LTV mortgages for FTBs available to help them step onto the ladder, and those aged 18 to 24 are the most likely age group to have lost work due to being furloughed, according to research from the Resolution Foundation.
It is no surprise then that the Bank of Mum and Dad is set to step in and help these buyers even more as the impact of Covid-19 is felt. In fact, nearly a quarter (24 per cent) of borrowers say they are now more reliant on funding from parents and grandparents because of the crisis.
Known unknowns
I try not to be in the business of making predictions, and today there are just too many unknowns to really understand how the impact of Covid-19 will play out in the housing market as we start to plan for 2021.
There has been plenty of concern raised about the ‘double whammy’ cliff edge next year, with the end of the Stamp Duty holiday falling on the same day that Help to Buy sees significant changes.
Could we yet again see the chancellor extend his generosity and taper the impact of this cliff edge? There is certainly precedent, having just announced a new Winter Economic Plan and Job Support Scheme to limit to impact of the end of furlough.
Moreover, worries about a significant rise in arrears and borrowers struggling to return from payment holidays look less likely to come to fruition too. Most lenders I have spoken to recently reported far higher numbers of people returning to full payments than expected.
A recent report by Imla also suggested that while a maximum of 5 per cent of borrowers returning from payment holidays would enter arrears, it could be as low as 0.5 per cent. This could all change of course, but with the latest Job Support Scheme from Downing Street, a cliff edge seems less likely for now.
An unknown known
Of course, all this activity depends on how we react in the coming weeks to a possible second wave of Covid, and the many headwinds and downsides we face are well documented and very real.
However, I am choosing to remain positive for now. We have the experience of the first wave under our belts and by and large most of us are still working from home. Our market reacted well back then, and it’s certainly even better prepared this time round.
Kevin Roberts, director, Legal & General Mortgage Club
