To the untrained eye, it may seem madness that house prices are reaching record levels during one of the worst global recessions ever. However, several factors have compounded to temporarily shield the property market from the sharper effects of the pandemic.
Stimulating demand has supported the property market
During 2019, the going Brexit uncertainty and subsequent December General Election somewhat stagnated the UK housing market. We were all set to open the flood gates of pent up demand in early 2020, and to be fair things were really hotting-up in those initial months. But then, well, we all know what happened in March!
When lockdown finally eased, it quickly became apparent that being confined at home changed a lot of priorities for people in terms of what they need from a home. Consequently, the UK housing market sprang into action, only to have the frenzy further increased by the introduction of a higher Stamp Duty threshold in July. It’s this perfect storm which has continued to push house prices upwards.
Lenders tighten credit controls
In addition to rising house prices, prospective purchasers are likely to have found it harder to get a mortgage; in a bid to counter the severe economic uncertainty and overall disruption caused by the pandemic, lenders have tightened credit controls.
Not only have lenders had to cope with the surge in demand from customers applying for mortgages since the first lockdown ended, but they also have (and are still) dealing with the overwhelming uptake of the Mortgage Payment “Holiday” scheme (more a deferral than a holiday). The Government introduced the emergency scheme at the start of lockdown to help millions of people in the UK plunged into financial difficultly.
In a bid to manage workload and still provide a good service, lenders pulled criteria for high-risk and high-demand properties and restricted high loan to value (LTV) offerings. While the mortgage market has mostly recovered to pre-COVID levels, the high LTV segment of the market remains limited due to high demand and lenders managing risk appetite.
For those with smaller deposits, often first-time buyers, it has resulted in them struggling to secure financing for their property purchase. With high LTV products flitting on and off the market, sometimes only open 24 hours for applications, borrowers have had to scramble to snatch up these rarer product offerings, leading to much frustration for borrowers and brokers alike.
Providing a solution to severe market volatility
The combination of rapidly changing product offerings, lender backlogs of work, uncertainty over lenders’ future appetite for risk and the wider economic environment, have all
combined to inject volatility into the mortgage market. Overlay this with the recent second lockdown, extension to furlough and Mortgage Payment “Holiday” schemes; it’s not an easy time to secure a new mortgage offer.
It is during all this disruption that the role of the broker has never been more essential. By leveraging their knowledge and carefully nurtured relationships with lenders, brokers can guide potential buyers through the uncertainty and identify the best lender to fulfil their product needs. Never has this been more important than in today’s volatile market.
Navigating the complexities of the mortgage market is challenging, even under normal circumstances. The wide range of rates and products on offer can overwhelm potential buyers, resulting in them taking out an inferior product or losing confidence in the market altogether and reneging on their purchase.
If the customer’s deal is time-sensitive, the last thing they need is to delay the purchase even further by accidentally selecting a lender that has a large backlog of existing applications to complete first. Or spend time finding the perfect rate, for it to be withdrawn before they submit their application. Broker’s pay close attention to lender service times and are the first to know about new competitive products, putting them in the prime position to get your investment plans on a roll.
Ultimately, greater uncertainty is knocking consumer confidence in this uncertain market. Brokers should rise to this challenge to come into their own, and by using their knowledge to relieve the pressure of securing the best – not to mention quickest and readily available – finance packages available.
Where does the property market go from here?
Predictions about the state of the property market vary. House prices have continued to rise right through to December, driven by the ongoing scramble to benefit from the Stamp Duty Holiday. Some predict that increased unemployment when the furlough scheme eventually comes to an end will cause prices to dip suddenly. I have my reservations about whether this will be as severe as some are predicting, and doubt it’ll decrease more than 5%.
These wildly varying predictions are indicative of the high level of uncertainty surrounding the current state of the market. One thing is sure, however, for existing homeowners and prospective buyers trying to navigate this tricky time, Brokers will be the ones to provide a steady hand on the tiller.
