Impact of the pandemic on the mortgage market

January and February saw high levels of lending activity, with a decisive victory for the Conservatives fuelling optimism that the Government can finally ‘get Brexit done’ and releasing some of the pent up demand in the mortgage market.

Then along came the Coronavirus pandemic to rock the boat. The Government's announcement of a complete lockdown on 23rd March has since turned the mortgage market on its head.

Change has been driven by a number of factors.

Firstly, there are purely practical factors. Brokers and lenders are now working from home, and for those who are used to being office based, it takes a while to establish new working practices. Consumers are now living a wholly virtual life. In many areas, this is familiar, but for a wide range of services, face to face is still the norm and this shift can feel uncomfortable. More agents are offering virtual and 360-degree viewings than ever before but would you actually buy a house on this basis? In the case of services such as valuations, the inability to access properties means no on-site valuations and there will be properties that lenders can’t offer on.  

We have seen such evidence this week, where lenders are not able to lend on certain properties such as new builds, flats, non-standard construction and new BTL purchases.

The Government has now also confirmed that homebuyers and renters should as far as possible, delay moving to a new house while these emergency measures in are place. If moving is unavoidable for contractual reasons then people should follow the advice on social distancing to minimise the spread of the virus. Anyone with symptoms or self-isolating should not move house for the time being.

This therefore enforces a relative stalemate in current house purchases, where people have exchanged but can’t physically move. 

The demand from consumers will certainly cool, faced with such uncertainty and of course the very real financial challenges that many people will start to face over the coming months. The Government's financial support package will help and the chancellor’s announcement to freeze mortgage repayments will help to reassure those who are worried about their ability to make their monthly payments. It is still a very worrying time for many workers however.

Whilst interest rates are tantalisingly low and a huge number of products are still available, the lack of any timeframe on the current situation will act as a barrier and Rightmove has in the last week reported a ‘significant’ slowing in property sales. We are likely to also see current chains start to collapse. Product transfers and remortgaging are still an option, but be conscious of the changes in LTVs that have come about as a result of coronavirus. 

With people working from home for longer periods however, this could drive them to want to move when normality returns - so we could have increased mortgage activity once the pandemic clears!

Next is the lender response, as companies look again at their risk appetite and consider if there is sufficient funding in place. Lenders will also be looking at how they operationally service new and existing mortgages under the move to remote working, with many also relying on customer support services outside of the UK.

Service levels don't appear to be dropping for pipeline applications, as lenders dedicate their support in this area.  But, we have seen movement in the LTVs lenders are prepared to offer, as well as restrictions on applicants who receive income from the travel, hospitality, retail, entertainment and leisure trades. Obviously, all the possible trades that will be hugely impacted by the nationwide lock down.

This has the potential to drive a significant downturn in activity, with the key question being how quickly will the market return back to normality? Unfortunately, none of us has the answer to this one but we are here to support our members by bringing together the latest information and updates from lenders and providers, overlaid with our own guidance. All of this can be easily accessed via our dedicated COVID-19 extranet area.