Will Leyland, 06 October 2020
It’s quite counterintuitive to consider that despite record house prices and unprecedented demand, it could possibly be harder to get a mortgage in such an environment, but it appears to be the case that in some circumstances, borrowers are struggling to get lending against property right now.
In fairness, there is the small but not insignificant matter of a global pandemic and worldwide recession, regardless of how brief, to contend with.
That being said, property has largely bucked these trends and has been something of an anomaly in an economy that has otherwise found itself battered and bruised from all directions as a public health crisis forced governments across the world to shut down their economies in order to protect their populations.
It feels obvious, but it’s somewhat difficult for consumers to spend money when they’re not allowed out of their own homes and, as such, this had a huge detrimental effect across entire industries and sectors.
It’s not all doom and gloom, however, as the Bank of England has recently reported that the UK economy has made up nearly 90% of the losses experienced earlier in the year due to the short-term shock of the lockdown measures.
But if things are recovering, the housing market is booming, and people are desperate to get active in the housing market, then how can it be that it’s becoming harder to get a mortgage?
Banks and priorities
There are a number of reasons that banks are limiting the amounts of mortgages they’re approving in the current climate, but economic instability ranks highly.
Mortgage holidays will be coming to an end shortly, but they have put a humungous strain on banks cashflows, cash supplies and liquidity. Don’t forget they’ve got certain obligations under FCA regulations that mean they must always have a certain amount of money on hand at any given time if there’s an economic shock.
It’s no surprise that nearly half the country wanting to take a repayment holiday has had huge ramifications on that. Not only that but banks rely on that income to be able to lend it back out to people again. Whilst it’s true that banks have a certain amount of wiggle room to create their own money, this is within reason.
Another implication is the demand and backlog, as reported in The Guardian. “In 2019, 90%-plus mortgages accounted for around a fifth of all home loans in the UK. But since lockdown, major mortgage lenders have started to withdraw from 90%-plus lending, fearful of falling house prices and arrears. This has left a handful of lenders like HSBC shouldering much of the demand.”
Earlier this month, HSBC announced it was “temporarily reserving” mortgages worth more than 85% of the value of a home to customers switching interest rates so that it could process the backlog of low-deposit mortgage applications, including from first-time buyers.”
Time to complete
Scarcity creates demand in economics and the mortgage market is no exception, so whilst it’s likely to be more stressful than usual getting approved for a mortgage right now there’s nothing to say it won’t get more difficult as time goes on.
These are uncertain economic times and whilst there’s no danger of mortgage companies reducing their offerings in the longer term, it certainly is not guaranteed that it will be any time soon.
With that in mind, now is probably the time to talk to a good estate agent and a good mortgage advisor.
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Will Leyland, 06 October 2020