Advisers Opinion: 95% Mortgages

We asked Senior Adviser, Damion Silcock his opinion on the governments announcement regarding 95% mortgages and what he thinks about the current market:

“Since lockdown broke and the stamp duty incentive was introduced for purchases up to £500,000 the market has been exceptionally buoyant.  We spent 3 months sitting in our homes on lockdown which seems to have sparked a massive number of people who have decided they needed a change, they needed more space, they want a garden etc. This saw an influx of properties coming onto the market.

During lockdown, the lenders tightened their purse string, they restricted the loan to values on the mortgages they were offering.  The lenders have slowly started to increase how much they are prepared to lend, tending to cap this at 80 – 85%.  We are still extremely limited to the number of lenders that will lend at 90% and none who will lend at 95% (excluding those mortgages that need additional family support)

Although the Bank of England Base Rate is still at a record low of 0.1% the lenders have and continue to increase rates on the higher loan to value products.  They are of course concerned about their existing mortgage books with people being put on furlough, taking payment holidays, being made redundant.  They have gone into self-preservation mode which is totally understandable.

I am often asked what I think is going to happen to house prices, this is of course the billion-dollar question.

Some people are predicting a drop in prices, the lenders are concerned so are not lending at the higher loan to values, this could therefore be a self-fulfilling prophecy, they could literally talk themselves into it.  We have to remember that the market has been relatively flat since 2016, it was only confirmation of Brexit (love it or hate it) that saw confidence come back into the market.  Pre lockdown, post Brexit confirmation, the market was looking fantastic backed up by amazing products.

The market is missing first time buyers, those people that have saved hard for their 5 and 10% deposits for their first home are finding that lenders do not want to lend to them or making them jump through ridiculous hoops, not lending on flats.  They have seen the rates on the products they were originally looking at more than doubled and have much longer tie ins.  The products seem more of a PR exercise (look at us we are lending at 90%, aren’t we great) whilst cashing in on the desperation of people wanting to buy their very first home and tying them in for a ridiculously long time, in some cases 7 to 10 years.

If Boris rolls out the 95% government backed products, the lenders set them at a reasonable rate (due to the government guarantee) at the right time and letting the scheme run longer term, past March 2021, when the Stamp Duty Holiday is meant to end, it encourages more lenders back into the higher loan to value market, I think this will help maintain house prices and could help avoid a potential slump.

The key is that if you buy, you need to be prepared to ride out any potential slumps in the property market.  This could be years.

We have no idea what the future holds regarding the Corona Virus, future lockdowns, vaccines etc.

The market is like a coiled spring at the moment, once things settle down and return to some sort of normality, I genuinely think things will be great again.”

For any further advice please do feel free to contact Damion or your adviser: 03442 643 575