As the Bank of England’s credit conditions survey suggests that mortgage availability is set to tighten, Mortgage Strategy speaks to brokers and other industry figures about what the coming months hold.
This week the central bank’s quarterly survey revealed lenders expect the availability of secured credit to decrease over the next three months to the end of May, particularly for borrowers with loan-to-value ratios above 75 per cent.
The poll was carried out between March 2 and March 20, during which time the coronavirus pandemic took hold in the UK and lockdown began on March 16.
Lenders responding to the survey also predicted that defaults would rise in Q2 and the spread between bank rate and consumer borrowing rates would increase.
The past three weeks have seen many lenders restrict their loan-to-values to 75 or 60 per cent as surveyors have been taken off the road and banks have only been able to carry out automated or desktop valuations.
In recent days there have been a few hesitant steps by lenders returning to market, but only at greatly reduced LTVs and with many caveats.
There has been much debate about whether the property market will bounce back when lockdown eventually comes to an end.
Hampshire Trust Bank managing director Charles McDowell spelled out the difficulties lenders are facing in a frank email to advisers.
He referenced Royal Institution of Chartered Surveyors guidance which suggests many valuation reports are likely to express a material uncertainty over property prices in the months ahead.
While some lenders have said they have only lowered LTVs because they are unable to carry out physical property inspections, McDowell said this was “merely an excuse”.
He said: “The real problem is what number do we put on any valuation in the months following lockdown and how confident will we be to lend against that number.”
And valuation concerns are far from the only factor that is likely to constrain lending.
Non-bank lenders have been lobbying the government to gain access to liquidity, warning that their usual funding lines are currently closed.
Without this support the availability of products normally supplied by specialist firms could be severely limited, cutting off many borrowers who are not well-served by mainstream high street names.
Intermediary Mortgage Lenders Association executive director Kate Davies says: “Along with other trade bodies, we are asking for the Bank of England and HM Treasury to provide a level playing field for lenders by allowing non-bank specialist lenders access to the same funding measures that banks can use.
“We are asking for a ‘term-funding scheme’ to be made available to non-bank specialist lenders and, additionally, a ‘forbearance liquidity funding scheme’ which would enable non-bank specialist lenders to fund loans on which forbearance has been provided, in line with the government’s announcement to borrowers.
“While it is too early to say exactly what the implications could be if these lenders are not given access to measures such as these, unless they are able to access funds, they may find it very difficult to continue to lend in the short-term.
“That could leave thousands of borrowers, specifically the self-employed and those with complex circumstances, much poorer in terms of the choice of mortgages available to them.
“In some instances, it might also mean lenders find it more difficult to offer forbearance to existing customers who need help.”
Property Financial Management managing director Chris Dixon shares many of these concerns.
He points to global macroeconomic warning signs such as the huge spike in US unemployment as well as calculations from the Office for Budget Responsibility this week suggesting UK GDP could fall by 35 per cent and two million jobs may be lost.
The Sussex-based broker says: “We have the makings of a perfect storm – mass unemployment, lack of mortgage money, people suddenly not selling and downsizing for fear of catching the virus and credit files in tatters as some people are just stopping mortgage and rent payments without prior permission.
“The current deals in play are holding the market up, but as soon as viewings are permitted again I suspect the market is going to collapse.
“If some banks are requesting a 40 per cent deposit now – when will the first-time buyers with small deposits be able to re-enter the market. small deposit buyers be able to re-enter the market?
“I predict that house prices will fall in around six to 12 months.
“As an adviser I have seen several major crashes – in 1989; the dot com bubble of 2000; and the mortgage crisis of 2007 onwards.
“All of these will pale in comparison to this one.”
Your Mortgage Decisions director Dominik Lipnicki is somewhat more upbeat.
He says: “Clearly lending has already tightened and we have seen lower LTVs as well as tighter affordability criteria being introduced by lenders worried about the future.
“Together with the whole country, the lenders are waiting to see how this will pan out, but as those of us who worked through the 2008/2009 crash, things can move very quickly.
“My hope however is that lenders as well as the government have learned much from the previous crash, without lending, everything stops, hence I am hopefully that all will be done to keep the market going.
“While some might not want to buy, the shortage of housing in the UK persists, which is why it is possible that we will suffer a relatively small house price adjustment.
“That said, if the government continues to fail to protect small businesses and the self-employed or if the lockdown continues for many months, then all bets are off.”
