The New World of Mortgages

Everything You Need to know about getting a mortgage after COVID-19

95% LTV

What has happened to mortgages?

As we all know, 2020 and 2021 has been dominated by the Corona virus. COVID-19 hasn’t just been a healthcare crisis but has had significant effects across multiple industries, least of which the housing sector. The changes to wages, job security and house prices have also effected the mortgage market.

In this article we will explore what’s happened to mortgage offers in the UK, what the Government is doing about it and ways you can get a better mortgage today.

As we entered lockdown social mobility decreased significantly. The number of people moving house dropped by a third in the first six months of the year. To revitalise the housing market, the the chancellor announced a nine month freeze on stamp duty for the first £500,000 across the entirety of England & Northern Ireland.

So, what has this got to do with mortgages?

Did you know: The number of 5% mortgages before the pandemic was 386. Now there is only one available on the entire market (except for a couple with stringent conditions such as guarantors)

Lenders have tightened their requirements for borrowing, meaning many high street lenders require a deposit greater than 10%. In June, Clydsedale and  Virgin removed their 90% LTV mortgages. And those 90% loan to value products that do remain are at rip-off interest rates. 

uk estate agents

Why is the mortgage market changing?

  • A surge in applications: following the councillor’s stamp tax freeze the demand for mortgage products has been overwhelming
  • Job market volatility: Ernest Young forecast the unemployment rate in the UK to be as high as 9%  by the start of 2021. There is also concern that a lot of employment is held-up by the Corona virus job retention scheme, following which more will become unemployed. This increases the risk of home owners defaulting and will reduce lenders’ risk appetite.
help to buy scheme

So, despite the reduction in stamp duty until March 2021 many first time buyers are finding it difficult to get onto the market as the deposit they have saved is no longer sufficient.

Given these issues, the UK Government will extend the help to Buy scheme until March 2021. Following this, the new help to buy scheme will begin and finish in March 2023.

And looking forward, the Boris Johnson is looking to guarantee 95% loan to value mortgages for first time buyers.

Will the Government Guarantee 95% LTV mortgages?

5% mortgages

The government is reportedly looking at a new first-time buyers scheme. The scheme would enable first-time home buyers to purchase using only a 5% deposit. In this scheme, the Government will guarantee the mortgage meaning the lenders take less risk should the house foreclose and be in negative equity.

Prime minster Boris Johnson said: “I think a huge, huge number of people feel totally excluded from capitalism, from the idea of home ownership, which is so vital for our society. And we’re going to fix that – ‘Generation Buy’ is what we’re going for.”

Boris Johnson mentioned this to the Telegraph and also mentioned how we need to create opportunities for those who may only have a 5% deposit.

So, how would this work?

The general idea is creating a form of “state guarantee” that would reduce the risk for lenders.

It says that the government may extend “a form of state guarantee” to lenders in an effort to de-risk the loans. This would open-up the market to more than new build developers and we’re expected to learn more soon.

This looks great for ‘generation buy’ but as for those who are looking to get a mortgage today

How to get a good mortgage deal

how to get a good mortgage

With mortgage criteria being tightened we need to do everything we can to get be successful in getting an offer. Everyone will be a different scenario when it comes to purchasing a home so here are some must-knows on how to get a good mortgage

Save the right way for your home

If you’re saving up for a home are you doing it in the most beneficial way? For instance, you can build a deposit quicker by using a Lifetime Isa (LISA). A LISA gives you 25% bonus each year of whatever you deposit into it (up to a maximum of £1,000) towards your first home. However, you will need to wait a year before using it. Also consider other ways you can increase your deposit; could you take on a lodger, pick-up some extra shifts or a part-time job?

Compare mortgages

Never rely on only one company or one intermediary. Most institutions will explain that you can get exclusive rates by visiting them directly. And a lot of intermediaries will attest to have a very broad pannel. To make sure you secure the best mortgage offer speak to multiple mortgage brokers (such as L&C, Trussle etc…). If you have a unique circumstance behind your applications it can be worth working with a specialist mortgage broker who has expertise in the kind of mortgage you need. Whilst you may pay a fee, you will save more across the term of your mortgage on interest

Try to negotiate before downsizing

There’s an adage in property that says ‘time in the market beats timing the market’. This year alone house prices have increased by 3% on average, with some homes seeing significantly more. If you don’t have the deposit for the £200,000 home you wanted, try to negotiate. We have a full guide on how to buy a house below market value that you may find helpful. Failing that, consider buying one at a lower price (say, £150,000) on a two-year fixed. 

Then, you can always add some value to the property by improving it and sell it within two years. You will have two years of equity from your mortgage payment, hopefully a 5-6% increase in house price from appreciation alone (more if you have done improvements) plus any other money you have saved.

The bottom line is that there are many opportunities still for buyers to access the market. It may mean that you need to look a little harder, be a little more creative or just wait a few more months but it’s possible. And when it does come time to move, SlothMove’s home setup service is here to make that easier by saving you time and reduce your costs.

What to do next

Reduce the cost of your energy bills (start)

New build vs old build (read)