Welcome back! Here’s what to expect in 2021 with our latest mortgage market update.
As we all exit the fog of a food/drink induced catatonic state, and make the long commute from our bedroom to our home office, reflecting on a Christmas that wasn’t, we are squarely reminded the world is far from normal.
That isn’t likely to change for a good few months, so I have had a think about what key themes are likely to define this year, and I believe the below 5 areas will be the key things to look out for:
No-one predicted such huge rises in house prices last January and that was well before Covid took grip of the UK. Nationwide believed that house prices were up 7.3% in 2020. As one of the largest lenders in the UK that is quite a useful guide. What is also telling is the trend. Prices were up 0.8% in December alone, which was only a fraction down from the 0.9% increase in November. Will that continue into 2021 is the big question though?
With the stamp duty holiday running to 31st March, we are likely to see gains again in Q1, but will that hold out? It is very difficult to tell but a huge cautionary note was struck by Halifax who predict a 2-5% fall in 2021. No other lenders have released predictions and if last years estimates were anything to go by (consensus was around 2-3% increases in 2020), I wouldn’t read too much into that especially as that was pre-Brexit deal.
My hunch is that we will end the year a few percentage points up. The reasons for which I have outlined below is greater access to lending, as opposed to last year. Also, even with the huge gains last year, that only really reverses years of subdued activity and low prices in the capital and home counties, so I think this year will be more defined by regional activity as the national picture may be misleading.
Mortgage Product Availability
We saw a huge decrease in the availability of mortgages in 2020 for obvious reasons. From a high of around 17,000 in 2016, down to as low as 5,000 by the end of 2020.
Again, the trend is the telling point here, as by the end of the summer, there were as few as 3,000 mortgage products available but that was up to nearly 5,000 by the end of the year (data from MoneyFacts).
As more products become available, it simply means more lenders are being active and offering loans to more people. The fear in 2020 was house prices falling, which really debilitates banks from being able to offer mortgages, but as that fear never materialised, lenders became more confident and got back into the market to support more niche areas, which is why I think the market will benefit from that this year, as many were frozen out last year.
Closely linked to the above, is lenders coming back in to offer loans to people with 5-10-15% deposits which wasn’t the case last year. This is a reminder that you can now buy at the below levels, which wasn’t the case for large parts of 2020:
- £500,000 with a 5% Deposit
- £750,000 with a 10% Deposit
- £1.5m with a 15% Deposit
- Please note, more can be achieved in the right situations
That may be more generous than you thought and will also act as a huge stimulus to the market this year as if you can’t get a deposit together, you simply can’t buy, or were put off by what you could afford when lenders had tightened up.
Again, a huge cap is off the market in that lenders are simply offering larger loans than they were in large parts of 2020.
Mortgage lenders had pulled right back to around 4.5 x your income, and many were not including bonuses, so we had to go to some really fringe lenders to achieve anything outside of this. That was possibly the largest brake we saw on the market last year, which thankfully is now easing.
Some lenders go as far as 5.5 x income plus including bonuses, so the difference is lending is huge. Below is a simple example to illustrate this:
- 5 x income, with no bonus on a base salary of £100k and a £50k bonus equals a loan of circa £450,000
- 5 x income, including bonus on the same numbers works out as a loan of circa £687,500 (as most lenders take half the bonus, but some will use 100% which can boost that figure further)
- Again, more than this can be achieved in the right circumstances
With such greater buying power this year, again, I can see that fuelling the market beyond the stamp duty holiday ending.
Lender Processing Issues
I suspect that this will actually be the issue that dominates the year for us mortgage brokers. With a spike in activity expected in Q1 as people rush to beat the stamp duty holiday, but lenders having less capacity due to Covid related issues, it may start to take many weeks to get a mortgage offers issued (some lenders are still taking 4-6 weeks to action cases, which means mortgage offers in 6-8 weeks in a best case scenario).
Not all lenders are suffering these delays but it means many borrowers will have to choose between the ‘best mortgage rate’ or the fastest mortgage offer, as they are different things.
Market Rates all finished the year decidedly down. That was most likely in response to the fears of a ‘no-deal’ Brexit which did not materialise. With Brexit now put to bed, we’ll have to see what impacts the gaping holes in financial services have, along with the clauses around ‘divergence’, as I suspect that will be a big theme moving forwards.
That said, it has had no impact on mortgage rates which have crept up, so we still feel keeping your mortgage options short term will save you the money in the long run.
In the last week:
3 Month Sterling Libor = down by 0.012% to 0.025%
2 Year SWAP = down by 0.021% to 0.048%
5 Year SWAP = down by 0.015% to 0.227%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 1.19%
2 Year Fixed Rates from 1.04%
5 Year Fixed Rates from 1.27%
BTL Rates from 1.19%
The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our advisers so that they can guide you through this process.
Source: Twenty7Tec January 2020