Mortgage Madness

Whilst the property industry suffered the brunt of the pandemic during the first lockdown in early 2020 alike many other industries, it’s upward trajectory since has been worth noting. Whilst the stamp duty holiday was introduced as part of an array of measures to support the recovery and stabilise property prices, it has arguably punched far above its weight.

Initially implemented in July 2020 as the UK emerged from the first lockdown with the intention of running until March 2021, it was extended as part of the Spring 2021 Budget until 30th June 2021. Whilst the holiday initially applied to purchases under £500,000, it will continue to operate following 30th June too but at a reduced threshold of £250,000 until 30 September 2021. Purchases of houses not only supports property markets but also has a knock-on or complementary effect on other industries which are knit with demand in the housing industry such as furniture, textiles, appliances, plumbing and carpentry.

Demand for houses surged in the UK has since surged with individuals seeking to relocate to areas offering spacious accommodation both in terms of internal floor area and open space/greenery on the outside. This led to an exodus of white-collar workers from crowded and cramped city flats to suburbs which ask for similar rents or mortgage payments but offer a better quality of life. Commute worries have also abated with work-from-home requirements prevalent across majority of the country across large parts of 2020 and the first quarter of 2021.

Mortgages are often the means by which houses are purchased since few have the financial capabilities to buy a property with existing finances. As a result, banks have found themselves to be ideally position to service this demand from the deluge of deposits and savings which were made at the beginning of the pandemic. Competition amongst lenders for the lowest mortgage rates has evidently engendered a race to the bottom with each bank seeking to outdo the other in a bid to attract first time and existing buyers.

With loan to value ratios increasing to as much as 60%, one may wonder whether house prices are a bubble reminiscent to the pre-2008 financial crisis. The government has also prompted banks to convert ‘generation rent’ into generation by offering astronomical loan-to-value ratios of nearly 95%. This is commensurate to the buyer having to deposit just 5% of the initial value of the property on purchase. 

Banks and building societies have slashed their rates with those such as Nationwide engaging in cut-throat competition by offering market leading interest rates of 0.99% on five-year fixed mortgages and 0.91% on two-year fixed mortgage. The caveat lies in the initial fee of £1499 with the deposit being 40% of the property value. This is available for properties valued between £275,000 and £1 million.