IS NOW THE RIGHT TIME TO BUY PROPERTIES?

By Lee Langley, Principal at OnPoint Mortgages.

The government’s announcement of a temporary stamp-duty holiday up to £500,000 in England and Northern Ireland has certainly led to a spike in enquiries here at OnPoint Mortgages. Interest has been across the board from time buyers, home movers and buy-to-let investors.

In fact, the measure is of greater bene!t to home movers and buy-to-let purchases, as !rst-time buyers were already exempt up to £300,000 outside of London and £500,000 inside.

First time buyers meanwhile face the challenge of lenders withdrawing 90 and 95% LTV products. It is understandable of course that lenders will want to review house prices and the impact on unemployment once the furlough scheme ends. Looking ahead, however, as an industry we must ensure that those with smaller deposits are not denied the opportunity for home ownership due to Covid-19. Especially when saving is hindered in a low interest rate environment and the ‘Bank of Mum and Dad’, crucial to many when getting their !rst foot on the ladder, will not be immune to potential !nancial di"culties caused by the pandemic.

Data published in the latest Moneyfacts UK Mortgage Trends Treasury Report states that from the 1st of June to the 1st of July 2020, the number of deals available at 90% LTV fell from 183 to 70 and the number of deals available at 95% LTV dropped from 31 to 14. Those offerings at 5% deposit are limited, typically specialist products for specific locations, professions (including some key workers) or guarantor mortgages that require a third party to put up collateral, such as a savings deposit or a charge against their own property.

At 10% deposit there remains an appetite from a small number of lenders, but with significant demand and lender operations often stretched to capacity, the availability is ever changing. We have seen flash sales and banks such as HSBC sensibly restricting applications to a certain number each day to protect service levels, and this will continue until there is a wider market shift into this space, with the re-entry of Nationwide being a great sign.

So, what can developers do to help potential purchasers? With the current requirements for a larger deposit, registering a development for the Help to Buy scheme for new builds would be important. This scheme is only available to those located in England, but similar schemes are available in Scotland, Wales and Northern Ireland. The Help to Buy scheme is currently due to end in March 2023 and from April 2021, the scheme will only be available for first time buyers. This allows purchasers to put down at least a 5% deposit with an additional 20% equity loan coming from the government, 40% if in London.

Some major homebuilders are offering a discount for key workers or including financial incentives for buyers. Lenders criteria can vary greatly in respect of incentives with some not accepting them at all. Those that will accept typically cap at 5% of the purchase price, with anything over this being deducted from the valuation. Financial incentives can include a combination of help towards legal fees, stamp duty, cashbacks, white goods, carpets and curtains.

Before taking a reservation fee, a developer needs to ensure a buyer is suitably pre-qualified via a mortgage broker in respect of their ability to obtain a mortgage. This is absolutely vital due to the additional scrutiny lenders are placing on the sustainability of an individual’s income for all types of applications.

If an employed buyer has been furloughed, they will typically only use 80% of the normal basic salary, while for the self-employed they will look at the sustainability of their business earnings, seeking an understanding of the company’s ability to trade through the pandemic. For those that have taken a payment holiday, expect the lender to seek clarity on why and expect mortgage applications to take longer while this additional underwriting takes place.

While funding will become more difficult for some, those that can meet requirements will be eager to purchase before the 31st of March 2021 stamp duty holiday deadline. Pricing is incredibly competitive as at the 20th of July 2020, Santander has a 1.74% 2-year fixed rate at 85% LTV, with a £999 lender arrangement fee and 3.22% representative APR. The affordability calculations remain similar to those used pre-pandemic; in fact, TSB have reduced the stress interest rate they use in their assessment from 7.25% to 6.6% as of the 19th of June 2020.

The low cost of mortgages and flexible affordability calculations mean this is a great time for those with sufficient deposit. This especially appears to be true amongst those with the ability to work from home, who may now be in a position to expand the location of their search for a property outside of the more expensive areas within cities and towns. The prevalence towards working from home will certainly be something that developers will want to consider in future projects.

Your home may be repossessed if you do not keep up repayments on your mortgage. Some forms of Buy-to-Let and Commercial Lending advice are not regulated by the Financial Conduct Authority.