The mortgage crisis for home buyers with small deposits is easing, but bringing back more home loans comes at a cost.
After the Chancellor’s vacation post boosted the property market last week, Nationwide stepped back into the mortgage market with 10 percent deposits.
Coventry BS and Co-op Bank joined the UK’s largest construction association to some degree, through their arms dealing with mortgage brokers.
But Nationwide has also revealed that 90 percent mortgages will repay faster and interest rates will also increase on 85 percent of mortgages – with two-year fixes rising to 0.3 percent and five-year fixes going up to 0.45 per cent.
In the downward scenario of the Office of Budget Responsibility, house prices will fall by almost 15% in two years’ time, but in the upward scenario the housing market will get a little tap and back on track – the slight return of 90% mortgages and a lowering stamp duties are lowered enough for the former?
In early March, Nationwide first had a mortgage for buyers of 90 percent at 1.84 percent – now the new deals for people start with a 10 percent down payment at 2.49 percent.
That’s still an amazingly low mortgage rate by historical standards, but with many borrowers already having to go as far as possible to get up the property ladder – taking out mortgages at 35 or even 40 years – the increase in interest rates will affect affordability calculations and hinder their chances.
Clearly, the mortgage landscape remains very different from what it looked like in early March before the coronavirus crisis and lockdown hit.
Equally obvious are the challenges facing the economy as Britain navigates cautiously out of the lockout and job losses continue to come with more predictions when the leave arrangement ends.
Less than five months ago, Britain was in the throes of a violent mortgage price war.
Banks and building associations fought each other to keep rates for their mortgage ranges getting lower.
If you had a big deposit, you got the best deal, but if you only had to deposit 10 percent or 5 percent, there was still plenty of choice.
When Britain closed and the real estate market went into the freezer, this changed abruptly.
Lenders took the ax to their smaller mortgages. The difficulties of working from home and the need to deal with a rush of clients requesting mortgage vacations blamed it, but there was another important factor: the fear of falling house prices.
No one remembered that the real estate market had been interrupted without mercy before, so no one knew exactly what would happen.
A good bet was that this break, combined with widespread leave, economic shocks and a wave of job losses, was not good news for house prices.
Fearing that anyone who would borrow with a down payment of 10 percent or less would be exposed very quickly to the prospect of negative equity, banks and construction associations fled to safety and massively raised those mortgages.
As it turns out, the properties of the UK property market Terminator style – whatever you think will kill it just keeps coming back – mean that since it was frozen and viewings, listings and valuations were able to start over, things have looked brighter than most thought.
A good barometer of the market is how many ‘discounted’ price listings you see on Rightmove and there is a steady stream of those coming in right now
Speak to many English brokers and they will tell you that they are pleasantly surprised at how things have been (I’m writing about England here, as Wales and Scotland have different closing schedules and Northern Ireland has a distinctly different real estate market).
At the top end of the market, especially in the English rural areas and popular rural towns and villages, agents will tell you that it is busy.
But that’s only for some houses. A good barometer of the market is how many ‘discounted’ price listings you see on Rightmove and there is a steady stream of those coming in right now.
Rishi Sunak’s decision to remove stamp duty from the first £ 500,000 of a home purchase has given the better-than-expected property market a new opportunity.
But the question remains whether this will be enough to evade the most pessimistic projections for house prices, such as the Office of Budget Responsibility’s downward prospects of a 2.4 percent decline this year and a 11.7 percent decline in 2021.
To be clear, these are the most pessimistic outlook, but last week, in the wake of the Holiday Economists of the Cembreurdienst, the Cebr even said, taking this into account, they expected house prices to fall 5 percent this year and by 11 percent in 2021.
Large mortgage lenders like Nationwide seem to think that reducing stamp duty helps and are inspired to mitigate the mortgage crisis somewhat by hitting small depositors.
Nonetheless, those 90 percent mortgages can be withdrawn at any time and remain significantly more expensive than a home loan for someone with 25 percent or 40 percent to deposit. This is in line with the post-financial crisis scenario.
And if house prices drop by 15 percent and you can’t get a 10 percent deposit mortgage now, you can do a favor with it, the problem is that after the price drops will mean lack of financing in the future starters can’t take advantage of cheaper real estate .
Some of the links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us to fund This Is Money and keep it free. We do not write articles to promote products. We do not allow a commercial relationship to affect our editorial independence.