There were initial concerns the industry could grind to a halt as it did during the credit crunch more than a decade ago. Those worries came as a raft of products were pulled shortly after Covid-19 hit Europe, and the housing market was effectively closed between mid-March and mid-May.

However, once it reopened, liquidity held up, transactions and house prices increased, the stamp duty holiday helped to boost demand, and rates stayed low. Meanwhile, income support schemes combined with payment holidays across many financial products kept arrears in check.

Of course, there have been casualties too. First-time buyers and others looking for high loan-to-value mortgages are suffering amid a dearth of such deals. Some buy-to-let landlords have struggled where their tenant cannot pay the rent but also cannot be evicted, and it is becoming harder to secure a mortgage for many people financially impacted by the pandemic.

Regulations

Yet many brokers believe the market as a whole has held up well in 2020.

Cherry Mortgage & Finance director Matthew Fleming-Duffy says: “March felt like a time warp and as if a new credit crunch was upon us. However, while capital markets froze earlier this year, UK regulations have ensured the exposure of the mortgage market to liquidity problems has been minimised.

“All lenders pulled products at the start of the first lockdown and paused lending altogether, but the market seems to have bounced back towards the end of the year — albeit in a more conservative way.”

London & Country director David Hollingworth agrees that the signs at the start of the pandemic appeared ominous.

“The contraction in products initially looked eerily similar to 2008, but that could be more easily explained by the practical hurdles that lenders faced, particularly the inability to conduct physical valuations.”

However, Hollingworth says over time the mortgage community worked together to overcome many problems.

“Lenders coped admirably with a huge volume of payment holiday requests, plus a closed housing market. It didn’t take long for lenders and brokers to regroup and consider how best they could continue to assist customers. Despite such difficult times when things changed at a rapid pace, the market showed how agile it could be in providing solutions, whether extending automated valuations or considering alternatives to verify ID.

“The housing market was able to reopen relatively early compared to some sectors and the mortgage market again showed how resilient it was in extending product ranges quickly, albeit not quite to the same high-LTV levels we were used to.”

Interventions

One of the first post-Covid interventions came in mid-March when the Bank of England lowered the base rate from 0.75 per cent to 0.25 per cent, and a week later to a historic low of 0.1 per cent to give the economy emergency treatment.

With mortgage rates already near all-time lows, this helped to keep them down, although they are still at fairly similar levels to pre-pandemic rates. Figures from data provider Moneyfacts showed at the end of November that the average two-year fixed rate stood at 2.42 per cent, only slightly down from a 2.44 per cent average a year earlier. Throughout 2020, the average never dropped below 1.98 per cent, but never rose above 2.45 per cent.

Low rates have helped to support the housing market, although many point to pent-up demand and the impact of the stamp duty holiday also giving it a shot in the arm, which has led to mortgage approvals for house purchase soaring since spring.

For example, HM Revenue & Customs data shows there were 105,630 residential transactions in October 2020, 8.1 per cent higher than in October 2019 and 9.8 per cent up on September 2020.

Similarly, BoE data at the time of writing showed the number of approvals for house purchase hit 91,500 in September, up from 85,500 in August — the highest figure since September 2007, and 24 per cent higher than in February 2020. This compares to just 9,300 in May when essentially the market was closed.

Approvals for remortgages (excluding product transfers) fell slightly from August to September’s 32,700 figure, according to the BoE. That is 38 per cent lower than in February 2020, though many point to product transfers making up some of the difference.

Given the rise in mortgage approvals for house purchase, it is unsurprising house prices have risen over the year, which is a far cry from some of the huge drops during the credit crunch, and against softer market conditions over recent years.

However, the annual rate of change fell in the early phases of the pandemic in March, April and May, according to the Halifax index, before picking up in summer. Its latest index showed that by the end of October house prices had risen by 7.5 per cent on the preceding year. Over the same period the Nationwide index recorded a 5.8 per cent rise.

Unsustainable prices

Many commentators suggest the rise is artificial as current conditions cannot continue, and point to a slowdown in growth over recent months. For example, the Halifax index reported a 0.3 per cent rise in October compared to 1.5 per cent in September.

Garrington Property Finders chief executive Jonathan Hopper says: “It is clear these house price rises cannot last. The sharp slowdown in the monthly rate of growth suggests several regional markets are approaching a high-water mark.

“The stamp duty stampede has boosted prices and, in the most desirable areas, detached the property market from economic reality.”

Andrews Property Group chief executive David Westgate agrees that rises may not continue.

“After a surge led by post-lockdown demand, the stamp duty holiday and a desire to relocate for extra lockdown space, the housing market is now in cool-down mode.

“That the furlough scheme has been extended until the end of March will provide support to prices, but you can see the rise in the number of unemployed people and businesses folding.

“Lenders have grown increasingly conservative in recent months and anyone with a small deposit now has a real struggle.”

Westgate’s point about the lack of mortgages for people with small deposits or little equity in their property has been a feature of the past few months.

At the start of 2020, Moneyfacts data showed there were more than 700 deals available for those with a 10 per cent deposit and just shy of 400 available at 5 per cent. Yet by mid-November there were no standard deals for borrowers with a 5 per cent deposit and fewer than 20 at 10 per cent.

Some brokers fear an uncertain 2021, with the tightening of lending for small deposits one of the first signs, as well as the fact many lenders, such as Lloyds and Nationwide, will now not lend to anyone being furloughed.

Coreco managing director Andrew Montlake says: “Lenders have been pulling down the shutters due to ongoing struggles with capacity and concerns over rising unemployment. What’s crucial is that the major lenders don’t go too far and start pulling products for more robust borrowers with larger deposits.”

The stamp duty holiday has been cited by many as a catalyst for rising demand. It was announced in July and came into effect immediately, meaning buyers would not have to pay tax on the first £500,000 of a property’s price until 31 March 2021. Many want to see it extended to prevent a potential crisis next spring.

Tax advisory firm Cornerstone Tax estimates that delays due to huge demand, more affordability checks and slower processes as a result of the pandemic could lead to 325,000 missing out on the relief, which could see their purchase fall through.

Its founder, David Hannah, says: “The government needs to either announce an extension or amend the tax payment date so homebuyers can still take advantage of the holiday even if they cannot complete by 31 March. The preferable option would be a phasing-out of the holiday to avoid those who are in the process being thrown off a cliff.”

Unable to meet demand

Bridging loan lender Market Financial Solution’s chief executive, Paresh Raja, adds: “The stamp duty holiday has been a great success in stimulating property investment. But, with the holiday coming to an end, we face the opposite problem — the market simply does not have the capacity to meet demand. This will lead to a backlog of sales, and buyers could miss out on the holiday as lenders are not able to release the volume of loans needed.”

Delays aren’t exclusive to house purchases as they can be felt across the market. Legal & General Mortgage Club says the combination of high demand and tougher working conditions for stakeholders has led to backlogs.

Its research in October found that, before the pandemic, a simple mortgage application often took less than two weeks to move to offer. Since the reopening of the housing market, however, many cases have taken up to eight weeks. When you build finding a home into the timeline, L&G says some purchases are taking 17 weeks, yet over Christmas this could take even longer.

Helping hand

What undoubtedly helped the market was the FCA’s decision in March to allow mortgage payment holidays of up to six months — with the regime recently extended so deferrals can last until the end of July 2021.

Lender trade body UK Finance says that, by November, 2.6 million mortgage payment deferrals had been granted since the start of the pandemic, of which 140,000 were still in place then. Meanwhile, lenders are not able to seek or enforce repossession before the end of January.

UK Finance managing director of personal finance Eric Leenders says: “The banking and finance industry stands ready to deliver assistance to those in need.”

The combination of deferrals across many financial products, income support schemes and some bigger benefits payments has prevented what might otherwise have been an unthinkable surge in mortgage arrears.

However, it must be remembered that not everyone has benefited from furlough or the Self-Employment Income Support Scheme. For example, campaign group Excluded estimates three million self-employed workers are locked out of help schemes.

Of course, the market has also been impacted by non-Covid factors, such as the difficulty many people in flats face to secure a mortgage over fire safety concerns, and the continuing drive among all in the industry to improve technology.

The pandemic was clearly the main story of 2020 but, as we head into 2021, the whole world — let alone the mortgage market — can be buoyed by the imminent Covid-19 vaccine. While we all hope for a return to normality, the mortgage industry will be hoping it can continue what might have seemed to be unlikely growth in spring.