Mortgages still in lockdown despite stamp-duty holiday

Low-deposit home loans are coming back… but choices are limited and lenders are applying new terms and conditions.

These are difficult times for anyone who wants to buy a home. Despite the government’s attempt to reinvigorate the market with a temporary stamp-duty holiday on properties costing up to £500,000 in England and Northern Ireland, unless you have a large deposit you could face a struggle.

During the crisis lenders have pulled mortgages, with those for borrowers with small deposits disappearing fastest. Some of the big banks and building societies have started to return to the market – last week saw 90% deals launched by Coventry building society and Metro Bank, and, from Monday, Nationwide building society will also be offering them.

But the choice is still limited, and lenders are asking a lot more questions than they were before lockdown.

What’s on offer

Since lockdown, the number of mortgages on the market has plummeted by almost half. Most deals that have gone are those where buyers need a deposit of 5% or 10%. According to financial data firm Moneyfacts, in March there were 779 products for borrowers with a 10% deposit, while the figure is now closer to 70.

For those with 5% deposits, the options are even narrower – in March there were 391, now just 14, and many of those are specialist products, says Eleanor Williams from Moneyfacts.

“This includes guarantor and family-assist mortgages, such as Barclays’ Springboard mortgage, and those open only to applications from selected professions, or from those in specific lending areas, such as those offered by Furness Building Society that reflect its principles as a mutual to continue to support those in their local area,” she says.

Matters are made worse by low interest rates, she says, which mean anyone saving is not seeing their money grow.

The stamp-duty holiday will give extra cash to movers and to first-time buyers spending more than £300,000. But for many, it won’t make up for the loss of 95% mortgages, says Simon Gammon, managing partner of mortgage broker Knight Frank Finance. “The stamp duty cut is not going to make that up, so, if anything, it is more frustrating for first-time buyers,” he says.

Blink and you miss it

With little choice at 90%, borrowers have needed to be on the ball to get their hands on the few mortgages that are available.

Coventry building society came back into the 90% mortgage market early last week, but not for long – it took applications for the deals between 8am on Tuesday and 8pm on Wednesday, saying the flash sale was to ensure good customer service.

Other lenders are taking a different approach to rationing mortgages. HSBC has been offering 90% home loans throughout the crisis but, since April, has limited the number of applications it accepts each day. “A small number of lenders cannot take all the business at higher loan-to-values and hence this action has been necessary,” says the bank. “We will, of course, continue to review the situation regularly and hope it isn’t too long before the market returns closer to normal.”

Nationwide building society will return to the high loan-to-value mortgage market from 20 July, with a 90% mortgage for first-time buyers. It’s re-entry is expected to be a game-changer. It has promised not to limit the number of mortgages available each day, and, as the country’s largest building society, should have more capacity to cope than smaller lenders. Metro Bank, too, has put its 90% home loans on more general release, and is not restricting them to new borrowers.

More questions

Anyone who wants a mortgage at a high loan-to-value should expect a lot of questions. Most lenders have added new terms and conditions to their deals, increasing the number of hurdles would-be borrowers need to get over.

“You are going to have to be a good-quality borrower to access a 90% mortgage,” says David Hollingworth of mortgage brokers London & Country. So anyone looking to remortgage or move may be asked if they have taken a payment holiday. “If you say ‘yes’, you can expect a more forensic examination of why,” says Gammon. “The same would apply if you have been furloughed.” He says he has not seen lenders say upfront that they will not take on borrowers who have taken a payment break, but, after scrutiny, some have been unable to borrow as much as they hoped.

Coventry building society is clear about furloughing: it is only willing to offer loans of up to 65% of a property’s value to anyone currently paid through the scheme. Metro Bank has also ruled out furloughed applicants for these deals – and when you return from furlough you must have evidence of three months’ full pay to apply.

Borrowers may also face more questions about how they raised the money for their deposit. Although help from other people is still allowed, at Nationwide, buyers will only be able to take out a 90% mortgage if they have contributed to the down payment themselves.

Lenders are also asking for more from self-employed borrowers. “Back in February lenders would ask for three years’ business bank statements and base the lending on that,” says Gammon. “Now they want statements for the last three months to see how your business has been trading.” Hollingworth says lenders are keen to see “what income can be evidenced”. For the self-employed or anyone furloughed and on a reduced income this could mean being offered a mortgage based on this sum, rather than what you would expect to earn normally.

A frustrating future

It will be some time before mortgages which require only small deposits will return, said Gammon.

“I don’t envisage lenders rushing back to the 95% mortgage market – they will want to see what happens as the furlough scheme unwinds, and also what happens to prices,” he says.

“I don’t think 95% mortgages are going to be back before the end of the year.”

Case study: ‘Every little bit counts’

Niamh Spence is looking for a house near Manchester. The 29-year-old PR manager is selling a property she bought with an ex-partner and hoping to move into a place of her own.

“I’m looking at around the £130,000 to £140,000 mark so I will benefit from the stamp duty cut. Every little bit counts, so I’m pleased about that. If you think before lockdown there were 95% mortgages, I’ve had to find extra for the deposit to meet the new requirements of lenders only supplying 85%. The problem is, there are barely no mortgages for 10% deposits and it’s so competitive – my broker says that if you don’t get in first thing in the morning you can’t get one from banks such as HSBC.”

Spence is currently furloughed, which hasn’t helped. “My mortgage in principle is based on me being on a furlough wage. Until I get back to work I can’t borrow any more, so I’m looking for something based on what I can do currently.

“I know plenty of people who are in the same position and I’m lucky to be returning to work as I know there are many who are facing redundancy. I’m selling to a first-time buyer and I’m not in a chain, but it is hard. I wish the government had encouraged lenders to come back to offer mortgages to those with 5% as asking for 10% or 15% can mean the difference of £5,000 or £10,000.”

Reference: Hilary Osborne and Shane Hickey, 'Mortgages still in lockdown despite stamp-duty holiday' - https://www.theguardian.com/money/2020/jul/19/mortgages-still-in-lockdown-despite-stamp-duty-holiday

Chancellor makes big changes to Stamp Duty: see how it affects you

Rishi Sunak has announced a stamp duty holiday in his summer statement. How will this affect you?

The chancellor, Rishi Sunak, has announced there will be no stamp duty to pay on property purchases up to £500,000.

What is stamp duty?

Stamp duty land tax, its proper name, is a tax paid by someone who purchases a property or piece of land in England or Northern Ireland – Scotland and Wales have their own systems. The tax is paid when the sale is completed and is based on the sum paid.

Prior to the financial statement, there were two different points at which stamp duty was payable, depending on whether you were a first-time buyer or a mover. For movers, stamp duty had to be paid on any property costing more than £125,000.

For first-time buyers there was no stamp duty to pay unless a property cost more than £300,000. If your first home cost more than £500,000 you paid the same as a mover but if it cost less than that, you only paid tax on the part of the price that fell between £300,000 and £500,000.

What will change?

The starting threshold will be increased to £500,000 on all sales taking place before 31 March 2021. The starting rate above £500,000 will be 5% and will apply to the part of the sale up to £925,000.

The change will apply to second homes and additional properties. They attract a 3% surcharge, and this will still be in place but buying property will now be cheaper for landlords.

Who will this help?

The cut will make a difference for anyone buying a property over the old thresholds. For first-time buyers, it will generally be those in the south-east and London who stand to benefit, as elsewhere they would typically not be spending more than £300,000.

The saving could allow people to move more quickly than planned - instead of needing the money for tax they can now channel it towards their deposit.

About half a million households will not pay the tax, according to analysis by the property firm Hamptons. It says 12% of sales are above £500,000 and these will also involve a saving but the biggest reductions in percentage terms will be at the lower end. A buyer moving to an £800,000 home will see their bill cut in half, while someone paying £5m will get a reduction of less than 3%.

The tax is paid after a sale is completed, so anyone who is part-way through buying a property will benefit.

How much will I save?

At £250,000, a first-time buyer was already off the hook for stamp duty but a mover would pay £2,500. They will now pay nothing.

If you are a first-time buyer spending £495,000 on a home, you will not pay any tax now and stand to save £9,750; a mover spending the same sum would save £14,750. At £600,000, you will pay 5% on the portion above £500,000. Your bill will be £5,000 - £15,000 less than under the old rules.

An investor spending £250,000 on a property will save £2,500, while one spending £495,000 will save £14,750.

Why do this?

The housing market was frozen during lockdown, with buyers and sellers told to stall purchases. Since estate agents reopened there are signs that people are looking again - property websites and mortgage lenders have all reported jumps in interest from prospective buyers but the Treasury is obviously worried that the rebound will be fleeting.

The housing market has a knock-on effect on other parts of the economy - as well as everyone employed in the sector, people moving house also support DIY shops and furniture shops. Estimates suggest moving house drives spending equal to about 5% of the property's value.

Will it work?

While some people are not moving because of immediate financial problems that will be solved by the cut, there will be many others who are staying put because they have lost their jobs, or are concerned about the outlook for the industry they work in. The cut may bring forward purchases but it may not stimulate many extra ones.

Previous holidays have focused on first-time buyers and do not seem to have led to a surge in sales.

What will happen to house prices?

The chancellor mentioned that prices had fallen since the crisis and talked about taking away uncertainty for people, so the move seems designed to support values. Some of the money saved by buyers could go towards their offer for a property and lead to increases in parts of the country where the market is busy. The fact that landlords and investors will also get a tax cut will make this more likely than if it had only applied to homebuyers.

Typically, the largest increases come in the run-up to a stamp duty holiday ending, when people are keen to take advantage of the tax break while it lasts, so we could see a bubble next spring.

How much would I normally pay?

Under the old rules a mover would pay 0% on the first £125,000, 2% on the next £125,000, 5% on the next £675,000, 10% on the next £575,000 and 12% on anything above £1.5m.

On all purchases there is a surcharge if it is a second home.

Reference: Hilary Osbourne, 'Stamp duty: what is it and what has the chancellor changed?', https://www.theguardian.com/money/2020/jul/08/stamp-duty-chancellor-rishi-sunak-summer-statement

What are the Conservatives' plans for stamp duty?

With a brand-new majority government, the Conservative Party now has the mandate to carry out some sweeping reforms and this could well include an overhaul of stamp duty.

Last summer, Boris Johnson repeatedly spoke about the possibility of reducing the Stamp Duty tax. However, these plans were not a part of the Tory manifesto this autumn, but fiscal experts believe the long-awaited reforms are more likely under this government than at any time. Investors are keen primarily because lowering the costs of transactions will trigger the property market in a highly positive way – something the Tories will be in favour of doing, especially to alleviate the effects of Brexit uncertainty.

The impact of any stamp duty reform would be mainly felt in expensive locations such as London, areas where more property owners were impacted by the amendments introduced nearly six years ago when the tax was last changed.

Who will be affected by the proposed changes to stamp duty?

The most likely change to stamp duty is likely to apply to overseas buyers who will pay a stamp duty surcharge of 3 percent. This is believed to apply to companies and individuals buying properties in England alike. Boris Johnson is reportedly interested in refuting claims that he is the leader of the party of the wealthy and to keep new voters on-side. The money raised from the changes – estimated to be circa £120m will be used to combat the capital’s homelessness crisis.

The Conservative Party claims that the measure – predicted to affect 70,000 transactions annually in England alone – would deter foreign investors buying properties and leaving them empty or as rental properties commanding over inflated prices. Recent research revealed that 13 per cent of new-build London properties were purchased by non-UK residents from 2014 to 2016.

The Treasury chief secretary, Rishi Sunak, said he would like Britain to remain open to people arriving to live, work, and settle down “in this great country”. However, the minister added a note of caution, saying that evidence strongly shows that enabling increased demand to housing already in limited supply will inevitably inflate house prices. Introducing a higher rate of stamp duty for foreign buyers will, therefore, help to resolve this issue and could hopefully raise much-needed funds for rough sleepers.

This policy was initially announced by Theresa May in 2018, but following a consultation, is now on the road to being formally adopted.

The surcharge would be imposed in addition to an existing higher rate of stamp duty on buy-to-let and second-home. This was brought in gradations in April 2016: 3 percent for homes worth less than £125,000, 5 percent for homes valued between £125,001 and £250,000, 8 percent for properties deemed to be worth between £250,001 and £925,000, 13 percent for homes up to £1.5 million – and 15 per cent for the tiny percent of properties worth more than that.

These changes mean an international non-UK resident purchasing a property valued more than £1.5m will need to pay a new stamp-duty rate of 18 per cent.


Reference: 'What are the Conservative's plans for stamp duty?', http://www.hip-consultant.co.uk/blog/what-are-the-conservatives-plans-for-stamp-duty-123/#more-5802 

UK home loans fall 90% since start of Covid-19 crisis

Figures drop to lowest rate since at least the early 1990s, says the Bank of England.

The number of new home loans approved in Britain has fallen by 90% since the start of the Covid-19 pandemic to the lowest since at least the early 1990s, the Bank of England has said.

Threadneedle Street's monthly update on the state of the property market found that despite the reopening of estate agents from the middle of May, the number of mortgage approvals fell to 9,300 from 15,900 in April. 

The number of new home loans granted in May was well below the 25,000 anticipated by the financial markets. It was the weakest since the Bank of England series began in 1993. At the start of the year, more than 70,000 new loans were being approved each month.

Analysts said the depressed state of the mortgage market was not wholly expected, given the restrictions on viewing homes until May and delays in home loan approvals.

"The latest fall isn't a sign that the market is struggling to recover," said Hansen Lu, a property analyst at Capital Economics. "Rather, it probably reflects the gap in the sales pipeline, from when the market was closed between March and May.

"With households confined to their homes, there would have been far fewer sales than usual moving to the mortgage approval stage in May. Also, many buyers with half-completed sales have been renegotiating on price, which also points to a delay in the sales pipeline."

Lu said lending was likely to pick up in June after reports of a surge in demand for property and agreed sales.

Mark Harris, the chief executive of the mortgage broker SPF Private Clients, said: "Covid-19 has had a devastating impact on the mortgage and property markets, so it is no surprise that lending was weak in May, with approvals for house purchase falling.

"With lockdown meaning that lenders were unable to send valuers out to physically view properties, the number of mortgages approved fell considerably."

The Bank of England data also showed consumers continued to pay off their debts in May, in a fresh sign the pandemic has made households more cautious.

People repaid £4.6bn of consumer credit in May following repayments of £7.4bn in April and £3.8bn in March, the Bank said. There were repayments on credit card lending (£1.8bn) and other forms of consumer credit such as overdrafts (£2.8bn). The three successive hefty net repayments of consumer credit compared with additional borrowing of about £1bn per month in the 18 months to February 2020.

The Bank said the "extremely weak" net flows of consumer credit meant the annual growth rate stood at -3.0%, the weakest since the series began in 1994. A breakdown of the overall figure showed the annual growth rate of credit card lending was negative for the third month running, falling to -10.7%, compared with 3.5% in February.

The reluctance of consumers to borrow money since the UK went into lockdown has come despite a cut in borrowing costs. According to the Bank, effective rates on new personal loans to individuals fell 34 basis points to 5.10% in May. This was the lowest since the series began in 2016 and compares with a rate of about 7% at the start of 2020.

Reference: Larry Elliot, 'UK home loans fall 90% since start of Covid-19 crisis' - https://www.theguardian.com/money/2020/jun/29/uk-home-loans-fall-90-since-start-of-covid-19-crisis 

Rent increases hit lowest ever levels – ARLA

The number of agents reporting rent increases dropped to 14 percent in May, the lowest level recorded by the ARLA Propertymark Private Rented Sector (PRS) report.

ARLA said this was because many landlords had chosen not to increase rent due to financial difficulties faced by tenants during the coronavirus pandemic. 

This is down from the 41 per cent of agents who said they were noticing rent increases in February, the last time ARLA conducted its PRS report and before the lockdown began. 

The year-on-year difference is also stark, as in May 2019 45 per cent of agents reported rises in rent. 

Furthermore, tenants have been more successful in asking for rental reductions with the number of tenants negotiating reductions increasing to 2.5 per cent in May – the highest since March 2019 when the success rate was 2.9 per cent. 

 https://unsplash.com/photos/rgJ1J8SDEAY

Tenant demand 

As landlords were unable to conduct viewings during the lockdown, the average time properties were empty between tenancies increased to five weeks in May.  

This is the longest time properties have remained void between tenancies since records began.  

The number of new prospective tenants fell to 70 per branch in May, compared to 82 in February.

However, the level of pent-up demand during lockdown meant that despite the fall, this is still the highest level on record for the month of May since records began, compared with 60 new tenants registered in May 2018, and 69 in May 2019. 

Rental stock supply

 

Following the reopening of the housing market, the number of properties managed per branch rose to 208 in May. This is an increase from pre-lockdown when the average number of properties managed per member branch stood at 201. This figure is the same year-on-year.  

David Cox, ARLA Propertymark chief executive, said: “Our latest figures show that landlords and agents have been taking the brunt of the pandemic. They are aware of the financial difficulties facing tenants and have shown empathy, with many landlords not increasing rents where they otherwise might have needed to.  

“As we continue to move forward, it’s important that everyone aims to keep the rent flowing in order to sustain the market and help boost the economy following several months of uncertainty.”  

Reference: 'Rent increases hit lowest ever levels', Shekina Tuahene, https://www.mortgagesolutions.co.uk/news/2020/06/29/rent-increases-hit-all-time-low-arla/