Mortgage approvals jumped to 66,281 in July, up from 39,902 in June. This could signal that lenders are returning to a certain sense of normality as the effects of coronavirus reduce but some warn that all may not be as it seems.
Sam Harhat, the Head of Financial Services at Andrews Property Group, commented on the figures: “Mortgage approvals in July may have been up sharply in June but expect them to tail off again in August to reflect the significant tightening of lender criteria.
“Over the past month or so, it’s as if the property and mortgage markets have been operating in two entirely different realities.
“The demand for property is exceptionally strong, a result of pent-up demand, the low cost of borrowing and the stamp duty holiday, while the availability of mortgage finance has been contracting by the day.”
Sam went on to note that high loan-to-value products specifically are now hard to come by.
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“There are very few products around for borrowers with small deposits and so using an independent mortgage broker who will know where they are could well be a good route.
“Also, just because a mortgage is available doesn’t mean its right for you.
“A good broker will be able to provide you with the peace of mind that the product you’re choosing is right for you and your circumstances.”
Generally, the lower the LTV the lower the interest payments on the loan will be.
This is because the lender takes less risk on a smaller loan but many savers, especially first time buyers, are unlikely to be able to generate large deposits.
This could be made all the more difficult given the latest UK House Price Index figures, which revealed that house prices increased by 2.9 percent in May 2020 when compared to the same period in 2019.
Miles Robinson, the Head of Mortgages at Trussle, also cautioned that these rising prices could be temporary in nature, while highlighting that lenders may still be hesitant going forward: “Despite the current climate, house prices have seen the highest monthly rise since February 2004.
“This suggests that the initial surge in demand following lockdown could be here for longer than many initially anticipated.
“However, there’s still a chance that we’re experiencing a ‘mini-boom’ ahead of the real after-effects of the pandemic setting in.
“Towards the end of the year, several government support schemes are set to come to an end, including the furlough scheme, which could increase unemployment rates in the UK to 3.5 million.
“For some, the homeownership journey is already challenging. First-time buyers, for example, are facing stricter criteria, with some lenders capping financial support from ‘The Bank of Mum and Dad.’ This, in addition to the shrinking range of high loan-to-value products, is leaving many people locked out of the market. Virgin Money introduced two new seven and ten year fixed-rate deals for those with a 10 percent deposit. However, first-time buyers should be wary when entering into lengthy loans as they can hinder moving and remortgaging in the future.
“While it is positive to see higher LTV products being reintroduced, the number of products available overall is continuing to fall and those that are being reintroduced have much tighter criteria. Lenders are right to be cautious in the current climate, however, we would urge the industry and the government to think about ways to ensure the market remains accessible to all.”