Lockdown 2: mortgage payment holidays to be extended for up to six months
Homeowners impacted by the coronavirus lockdown can now extend their mortgage payment holiday. Find out more here.
The mortgage payment holiday scheme will be extended for up to six months following the news that England will go back into national lockdown from 5 November until 2 December.
The scheme had been due to come to an end on Saturday 31 October, but as a result of the new measures designed to contain the Covid-19 pandemic, borrowers who have not yet had a mortgage holiday can request a pause in repayments from their lender that can last up to six months.
The Financial Conduct Authority (FCA) has asked mortgage lenders extend the availability of payment deferrals to support borrowers who are experiencing payment difficulties because of coronavirus so that:
- those who have not yet had a payment deferral will be eligible for two payment deferrals of up to six months in total
- those who currently have an initial payment deferral, will be eligible for another payment deferral of up to three months
- those who have resumed repayments after an initial payment deferral will be eligible for another payment deferral of up to three months
This means homeowners who have had their payments deferred already can extend their mortgage holiday for a further three months until they reach the six-month limit.
Some borrowers will not be eligible for the extension because they have already had two mortgage payment deferrals up to the six-month limit.
In such cases, the FCA has said borrowers who have already taken the full payment holiday but need further help should speak to their lenders to agree an alternative form of “tailored support”.
The FCA is also proposing that no one will have their home repossessed without their agreement until after 31 January 2021.
What's the background?
A mortgage payment holiday means repayments are deferred for a specific period and during this time, a homeowner will not have to pay anything, but interest will continue to accrue and will be added to the total amount that is owed.
The mortgage holiday scheme was first implemented following the April lockdown and by October 2020, industry figures showed that 162,000 mortgage payment deferrals were in place, down from a peak of 1.8m in June.
Lenders will work with borrowers who are struggling to meet their repayments to find the best solution for them.
This includes extending the payment holiday, agreeing to reduced payments, switching them to an interest-only mortgage and extending the mortgage term.
How does a mortgage payment holiday work?
Customers whose finances have been impacted by coronavirus are allowed to take time off making mortgage repayments.
The original payment holiday was announced on 17 March and lasted for three months, but the term has now been extended to cover the latest lockdown measures in England.
Because mortgage payments are only deferred, the interest that would have been paid is added to the outstanding debt owed.
This means the missed payments will need to be made up at some point in the future.
What other options are available?
Lenders have agreed to work with borrowers to find the best solution for them.
This may be a payment holiday, or they may look at other options that could better suit their circumstances.
For example, they may agree to accept reduced payments for a period of time, switch them to an interest-only mortgage, or extend their mortgage term. This would also lead to reduced monthly repayments.
But despite this flexibility, UK Finance has urged people who can afford to keep up with or resume their mortgage payments to do so.
How do I apply for a payment holiday?
If you want to apply for a mortgage holiday, go to your lender’s website and follow the link on coronavirus.
Many lenders have set up an online application process after being inundated with requests in the early days of the scheme.
If you want to take a different option, such as switching to an interest-only mortgage, you should contact your lender directly.
Use the mortgage payment holiday calculator below, powered by mortgageholiday.co.uk, to see how your monthly payments may be affected by a holiday, and to find out how to apply:
Whether you apply online or by telephone, you will need your mortgage details to hand, including your account number.
But you will not need to prove that your finances have been impacted, as lenders are allowing people to self-certify this.
Do not cancel your direct debit before the payment holiday has been agreed, as this would be classed as a missed payment and could impact your credit history.
Can anyone apply for a payment holiday?
A payment holiday is only available if you are not in mortgage arrears and have suffered only a temporary drop in your income, rather than a long-term reduction in your earnings.
If you face longer-term financial issues, an alternative solution may be more appropriate for you.
Either way, contact your lender and discuss it with them.
Will it impact my credit score?
Getting into mortgage arrears would normally have a negative impact on your credit score. But in light of the current exceptional circumstances, UK Finance has said lenders will make sure that borrowers’ credit scores are not affected.
As a result, if you are struggling to meet repayments it is important that you get in touch with your lender and agree to a formal payment holiday.
Number of new homes built jumped 50% in third quarter
The industry started to return to pre-lockdown output by September, but the number of completed homes is still down on last year as we enter lockdown two.
The number of new homes being completed jumped by nearly 50% in the third quarter of this year as the construction industry began its recovery following the first coronavirus lockdown.
Nearly 30,000 new properties were finished during the three months to September, up from just over 20,000 in the previous quarter, according to NHBC, which provides insurance warranties for new homes.
While the increase in homes being built was encouraging in the third quarter, the total for 2020 is still the second-lowest rate of new build completions since 2012 when the sector was reeling from the financial crisis.
The current total of new properties completed so far this year stood at 83,359 at the end of September, which is 30% lower than for the same period of 2019.
Steve Wood, chief executive of NHBC, said: “The Covid-19 pandemic delivered a sharp shock to the housing market in the second quarter of 2020.
“It is encouraging that by early summer house builders had established Covid-secure operating practices and had moved closer to pre-lockdown productivity levels by the third quarter.”
England is due to enter a second national lockdown this week, but the secretary of state for housing, Robert Jenrick, has stressed that the property industry is still open and “construction sites can and should continue” to operate Covid-securely.
Why is this happening?
The housebuilding industry was hit hard by the first coronavirus lockdown, which led to work on construction sites being suspended.
Building has since been allowed to resume, following the introduction of new measures to keep workers safe from the virus.
Even so, output levels would have to double in the final quarter for the total number of homes completed this year to be on a par with 2019.
Who does it affect?
With demand for new build homes currently high, the lower level of completed builds will be disappointing for many potential buyers.
But the issue is particularly worrying for people who are hoping to use the government’s Help to Buy scheme.
The initiative enables people to purchase a new build property with just a 5% deposit, which the government tops up with a 20% five-year interest-free equity loan.
But the scheme in its current form is due to end on 31 March 2021, after which it will only be available to first-time buyers.
The government has extended the deadline by which properties must be finished in order for them to qualify for the existing version of the scheme to 28 February 2021, with the date for legal competition remaining unchanged at 31 March 2021.
What’s the background?
Out of the nearly 30,000 homes finished during the third quarter, 18,319 were for private sale, with the rest either affordable homes or ‘build to rent’ properties.
Building levels were highest in the South East, with a total of 4,072 properties finished in the region in the three months to the end of June, followed by the East at 3,228 and the North West at 3,631.
At the other end of the scale, only 798 homes reached competition in Northern Ireland and just 864 in Wales.
The types of properties being constructed were fairly evenly split between detached homes, semi-detached houses and apartments, all at around the 8,400 mark, with 3,751 terraced properties and 465 bungalows also built.
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Top three takeaways
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The number of new homes being built jumped by nearly 50% in the third quarter as the construction industry recovered from coronavirus lockdowns
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A total of 29,587 new properties were finished during the three months to the end of June, up from 20,102 in the previous quarter
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At 83,359, the number of new properties completed for the year to date is 30% lower than for the same period of 2019.
Three-tier lockdown: what do the new coronavirus measures mean for the property market?
We explain the government's rating system and what it means if you’re trying to buy or sell a home this winter.
Parts of England have been plunged back into lockdown after Prime Minister Boris Johnson announced new measures to help combat the coronavirus pandemic.
The government is adopting a simplified three-tier system, under which restrictions will apply on a local basis according to the severity of Covid-19 outbreaks.
The move comes as the property market enjoys a strong rebound with solid price growth as buyer demand, which built up during lockdown, continues to work its way through the system.
Under the government’s new advice, estate agents remain open and physical property viewings are still allowed across England, with a strict bookings process in place and comprehensive advice on how to follow social distancing guidelines inside properties.
However, the rules are different in Wales where a nationwide lockdown is being introduced from Friday, which will effectively shut the property market for two weeks (more on which, below).
While the latest lockdown measures may make viewing properties more difficult in some areas of England, they are unlikely to dent the current high level of interest from potential buyers.
Richard Donnell, our head of research and insights, said: “We’ve already seen how lockdown led to people carrying out a once-in-a-lifetime re-evaluation of their homes and lifestyles, with a focus on prioritising space. And the latest restrictions will continue to support this trend – particularly for those who are more financially secure.”
Meanwhile, the stamp duty holiday is continuing to act as an incentive for buyers to complete a purchase before it comes to an end on 31 March 2021.
As a result, if you want to sell your home, the current measures are unlikely to deter potential buyers.
The governments in England and Scotland are encouraging the use of virtual viewings before visiting properties in person in order to minimise public health risks, and socially distant viewings will continue to be the norm.
However, as of this weekend it will not be possible to view properties in Wales for the duration of a two-week "firebreak lockdown".
What the different tiers mean:
Tier 1 - medium alert
In tier one areas all businesses and venues can continue to operate in a Covid-secure way, other than those that are currently closed by law, such as nightclubs.
Schools, universities and places of worship can remain open, and indoor sport and exercise classes can continue to take place. People must not meet in groups of more than six either indoors or outdoors.
Property viewings can continue to take place as long as anti-coronavirus measures are taken and there are no more than six people in the property at one time.
Such measures include the wearing of face coverings, regular hand washing, keeping doors and windows open for good ventilation during the viewing, and only two prospective buyers from the same household entering the property at a time.
Open house viewings are not allowed at this time.
If any member of either the household being viewed, or the household viewing, shows symptoms of Covid-19 or is self-isolating, then an in-person viewing should be delayed.
Most areas of England currently fall into this tier.
Tier 2 – high alert
Anyone living in a tier two area must follow all of the tier one rules, and also not meet with anybody outside of their household or support bubble in any indoor setting, including their home or a public place.
However, the current government advice states that in-person property viewings can still take place, with appropriate precautions. For the latest government advice in full check here.
Nevertheless, the ban on meeting people outside of your household or support bubble indoors means that some buyers or sellers may decide to suspend property viewings or only undertake them virtually.
Areas that fall into this tier currently include parts of Cheshire, Warrington, West Yorkshire, South Yorkshire, the North East, Tees Valley, West Midlands, Leicester and Nottingham.
London, Essex, Elmbridge, Barrow in Furness, York, North East Derbyshire, Chesterfield and Erewash are the latest regions to be placed in tier two.
Coventry will move into tier two from midnight on the 23 October.
Tier 3 – very high alert
Tier three is reserved for areas where transmission rates of Covid-19 are causing the greatest concern.
People living in these areas are not allowed to meet anybody outside of their household or support bubble in an indoor or outdoor setting, apart from open public spaces such as parks and beaches, where the rule of six will still apply.
People are also advised not to travel in and out of these areas, other than for work, education, accessing youth services or caring responsibilities.
Restrictions in this tier are likely to have the biggest impact on the property market.
Although government guidelines don’t currently state that in-person viewings are banned in tier three regions, it can be assumed that in many cases estate agents, sellers and buyers will decide against going to see properties while restrictions are in place, unless they have no other option.
That said, renewed lockdown measures may also heighten people’s desire to move if they are unhappy with their current accommodation.
In England, tier three currently applies to Liverpool and the surrounding area, where the housing market is currently on a strong footing with price growth driven by rising demand of 3.4% recorded in the year to the end of September.
Lancashire was the second region to be placed in tier three.
Greater Manchester has now had tier-three restrictions imposed upon it despite an agreement failing to be reached between local government leaders and Westminster. Restrictions will come into force on Thursday 22 of October.
South Yorkshire will move into tier three from Saturday 24 October. The area is comprised of Barnsley, Doncaster, Rotherham and Sheffield.
Other areas currently in discussion with the government about entering tier three include West Yorkshire, Nottingham, the North East and Teesside, but no agreements have yet been reached.
What about Scotland and Wales?
Scotland introduced a raft of short-term new anti-coronavirus measures which started on 9 October and will run until 26 October.
They include not meeting people outside of your extended household in their home or inviting them to yours, and not gathering in groups larger than six people or from more than two households outdoors.
Indoor pubs and restaurants can only be open between 6am and 6pm and they cannot service alcohol, although outdoor ones can stay open until 10pm and can serve alcohol.
The rules apply to the whole of Scotland, with some additional measures also put in place across the central belt.
The Scottish government’s guidance on property viewings emphasises a virtual-first approach. This means in-person property viewings are permitted, but it is recommended that you view properties virtually in the first instance if possible and only proceed to a physical viewing if you are interested in offering on the property.
First minister Nicola Sturgeon this week announced a new five-tier system would come into force in Scotland on 2 November. The tiers two to four will largely match the English system, with tier one for lower risk areas and tier five imposing even tougher restrictions.
The Welsh government is introducing a nationwide "firebreak lockdown" from the end of this week. This means that a series of restrictive measures will be in place from 6pm Friday 23 October until the start of Monday 9 November 2020- and this includes the closure of estate agencies for this two-week period.
Property viewings are not permitted during this period. However, if you are moving home and cannot change the date of moving, then removals and other services required for moving home are permitted, but should be avoided if possible.
Up until the latest national lockdown, advice from the Welsh government has been that in-person viewings can still take place, also with an emphasis on virtual viewings in the first instance and strict guidelines for conducting viewings Covid-securely.
What do the new measures mean for estate agents?
Mark Hayward, chief executive, NAEA Propertymark comments: “The new three tier Covid restriction approach has not changed the guidance for estate agents.
Mortgage availability drops to 10-year low as Covid-19 makes lenders cautious
The number of home loans on offer has halved as banks tighten their lending criteria in the wake of the coronavirus pandemic.
The number of mortgages available for buyers to choose from has fallen to the lowest level since 2010.
A total of 2,259 mortgages are now available – that’s less than half the number that was on offer in October last year, according to Moneyfacts.
Average interest rates on mortgages have also risen for the third month running, although the typical cost of a two-year and five-year fixed rate deal is still lower than it was in March.
Meanwhile, the Bank of England’s Credit Conditions Survey showed that banks and building societies had tightened their lending criteria for mortgages between July and September, with further tightening expected in the next three months.
Why is this happening?
The coronavirus pandemic along with its associated lockdowns and job losses has made lenders more cautious.
They are also bracing themselves for a rise in repayment arrears in the coming months as mortgage payment holidays come to an end.
Banks and building societies have reviewed and streamlined their mortgage ranges, as well as become pickier about who they lend to.
At the same time, they are taking the opportunity to increase their margins - the difference between the rate they borrow money at and the rate they charge customers – to make mortgages more profitable.
Who does it affect?
First-time buyers have been particularly hard-hit by lenders reassessing their mortgage ranges, with many deals for borrowers with small deposits having been pulled from the market.
In October, the number of mortgages for buyers with a 5% deposit fell to just 12, compared with 391 in March.
Meanwhile, there are now 51 mortgages for people with a 10% deposit - down from 779 seven months ago.
But lenders are not just pulling loans for buyers borrowing a high proportion of their home’s value.
The number of different deals available has fallen in all but two loan-to-value (LTV) brackets, including the 60% one, which is usually the tier lenders reserve their most competitive rates for.
What’s the background?
Despite tightening their lending criteria, banks and building societies are still very much open for business, as evidenced by the number of mortgages approved for house purchase reaching a 13-year high in August.
In fact, the Bank of England survey showed that although there is now less product choice, lenders actually increased the funds they had available for mortgage lending during the third quarter and they do not plan to restrict lending levels in the final part of the year.
But despite banks and building societies typically launching their most competitive deals between October and December, as they look to meet their annual lending targets, this year they expect to further increase the interest rates they charge on mortgages.
Top three takeaways
- Mortgage availability has dropped to the lowest level since 2010
- The number of mortgages available is also less than half the number that was on offer a year ago
- Lenders have tightened their credit criteria – and further tightening is expected in the coming three month.
Nearly a third of landlords plan to sell properties in the coming year
The coronavirus pandemic has hit the buy-to-let sector hard, leading to an estimated £437m in rent arrears.
Twice as many landlords are planning to sell properties as those who are looking to expand their portfolios over the coming year, following a steep rise in rent arrears caused by the coronavirus pandemic.
Three out of 10 private sector landlords plan to sell one or more properties, compared with 16% who expect to buy at least one more in the next 12 months.
This is despite the fact that 35% of buy-to-let investors said they had seen increased tenant demand during the past three months, according to the National Residential Landlords Association (NRLA).
Unsurprisingly, nearly two-thirds of landlords said their businesses had been negatively impacted by Covid-19, with 18% saying the pandemic had had a significant negative impact on it.
Why is this happening?
The pandemic, lockdown and the resulting negative impact on jobs and earnings has led to a steep increase in the number of tenants who have fallen behind on their rental payments.
The NRLA estimates that private sector rent arrears in England as a result of coronavirus stand at £437m.
This increase in rent arrears, combined with rising costs as a result of regulatory and tax changes, has made the sector less profitable, leading many landlords to review their portfolios and sell properties.
Who does it affect?
The fact that nearly a third of landlords are planning to sell properties is bad news for tenants in the private rental sector.
There is already a mismatch between supply and demand, and a further reduction in the number of properties available to let is likely to drive rents higher.
What’s the background?
Landlords are calling on the government to help tenants in England who have fallen behind with their rent.
Suggestions include offering interest-free or low-cost hardship loans to cover arrears, similar to those available in Wales and Scotland.
Currently, if landlords are struggling to pay mortgages because their tenants are in financial difficulties, they can apply for a mortgage payment holiday of up to three months, with the interest they would have paid added to their outstanding debt.
Landlords are advised to try to work with their tenants to establish an affordable repayment plan for any rental arrears once the tenant’s finances have improved.
Landlords are also advised to ask their tenants if there are any benefits they may be entitled to that they are not currently claiming. For example, Universal Credit and Housing Benefit have been increased since the start of the pandemic to cover at least 30% of market rents in the claimant’s local area.
The ban on tenant evictions has also now been lifted, although landlords still have to give tenants six months’ notice in the majority of cases.
Top three takeaways
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Three out of 10 private sector landlords said they planned to sell one or more properties during the coming year, compared with 16% who expect to buy one
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The selloff comes despite 35% of landlords seeing increased tenant demand during the past three months
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Nearly two-thirds of landlords said their business had been negatively impacted by the coronavirus pandemic, with 18% saying it had had a significant negative impact on it.
Bank of England eyes negative interest rates: what it could mean for you
The Bank of England has written to UK banks asking them to prepare for zero or negative interest rates. We look at what this might mean for borrowers.
As the Bank of England explores the possibility of introducing negative interest rates, we take a look at the impact such a move would have on people taking out mortgages.
What’s happening?
The Bank of England’s Monetary Policy Committee is exploring how negative interest rates could be implemented.
Such a move would mean entering a ‘topsy-turvy’ world in which institutions are charged for depositing cash with the Bank instead of being paid interest on it.
The Bank has recently written to the UK’s banks asking them what steps they would need to take to be ready for the introduction of negative interest rates.
Despite this flurry of activity, the Bank has been at pains to stress that it is currently only considering negative interest rates as part of its “policy toolkit”.
It is expected to put in place other measures to support the economy before taking the drastic step of introducing negative interest rates.
Even so, markets have priced in a possible move to negative rates in the spring of next year.
What does this actually mean?
Negative interest rates mean that instead of the Bank paying commercial banks interest on the money they deposit with it, it would instead charge them money.
So, for the sake of argument, if the base rate was cut from its current level of 0.1% to -0.1%, instead of earning interest of 0.1% on their deposits, commercial banks would be charged interest of 0.1% by the Bank.
Such a move would potentially impact consumers as high street banks base the interest they pay on savings accounts and charge on certain mortgages on the Bank’s base rate.
Why is the Bank of England considering taking rates below zero?
The theory is that charging banks to deposit money encourages them to lend money to businesses and consumers, rather than hold it in reserve.
The easier and cheaper it is for businesses to borrow money, the more likely they are to do so.
The way they spend this money, such as investing in new machinery or expanding their businesses, helps to boost the economy and support employment.
What impact could it have on consumers?
While negative interest rates will have an impact on borrowing costs, it is highly unlikely that customers will be paid by their bank to borrow money.
People with fixed rate mortgages will not see any impact on their monthly repayments, as these are set for the term of the mortgage.
Those with tracker deals, which move up and down in line with the Bank’s base rate, could see a drop in their repayments but are unlikely to not be charged any interest at all.
The reason for this is that trackers charge interest at a set percentage, such as 1%, above the base rate, meaning the base rate would need to be deep into negative territory before mortgage rates followed suit.
Many tracker deals also include clauses, known as collars, stating that the interest charged will never fall below a certain level.
There has only been one case of mortgage customers receiving negative interest rates, which occurred in 2019 when Danish lender Jyske Bank offered a rate of -0.5% a year.
Even then, borrowers were not paid by the bank, with it instead reducing their outstanding mortgage debt each month by more than the amount they repaid.
While borrowers in the UK are unlikely to benefit from a similar scenario, negative interest rates are still likely to lead to lower mortgage rates.
The news is less good for savers, who are likely to earn lower interest or even no interest on the money they have deposited with banks.
But it is unlikely most consumers will have to pay to keep their savings in an account, with banks expected to limit charges on deposits to large corporations and very wealthy individuals.
What knock-on effect could it have on the housing market?
As a general rule, low borrowing costs support the housing market by making it cheaper for buyers to borrow larger sums.
With the UK already facing a mismatch between the supply of homes and demand for them, lower borrowing costs are likely to lead to higher house prices.
That said, the Bank is considering introducing negative interest rates because the coronavirus pandemic has created an extraordinary economic situation, so any boost to the housing market may be tempered by lower consumer confidence and rising unemployment.
When was the last time we had negative interest rates?
In its 326-year history, the Bank has never previously introduced negative interest rates.
But central banks in Europe and Japan have had them in place for some time.
Q&A: House price growth is holding steady – but will it last?
Our August 2020 House Price Index revealed prices continued to climb. Our director of research and insight, on what the next few months could have in store.
Q. Why are house prices holding firm against a gloomy economic backdrop?
A. Buyer demand continues to run ahead of the supply of homes for sale, and this imbalance is supporting 2.6% annual growth rate in UK house prices.
Buyer appetite is 39% higher than at this stage last year. Existing homeowners are becoming increasingly active in the housing market, driven by a once-in-a-lifetime re-evaluation of their home and lifestyle as a result of the pandemic. And although first-time buyer appetite has softened a little, it remains well above 2019 levels.
In addition, the government’s stamp duty holiday has fuelled demand, with nine out of 10 buyers paying no stamp duty at all, saving them an average of £4,500.
And let’s not forget there are few forced sellers because the furlough scheme and mortgage payment holidays are supporting homeowners.
However, the impact of Covid-19 is being felt in the rental market in central London in particular.
International and national travel and tourism numbers are down, with London airports operating at reduced capacity. You only have to look at Heathrow Airport’s announcement in August, which reported an 88% plunge in July passenger numbers.
This weaker demand is putting downward pressure on rental growth.
Q. Where are house prices growing the most and why?
A. Our House Price Index shows that the headline growth rate is holding steady at 2.6%.
But at a city level, Nottingham and Manchester are recording annual house price growth of more than 4%, demonstrating the strength of the cities’ local economies and affordability.
There’s a definite strength in cities in northern England and Scotland, with Leeds, Edinburgh, Leicester, Liverpool, Cardiff and Sheffield all registering annual house price growth between 3% and 4%.
Q. The index has revealed that homeowners are set to overtake first-time buyers (FTBs) as the driving force of the housing market. Why is that?
A. Yes, first-time buyers have been the driving force for housing sales over the last decade. They’ve been supported by government initiatives, such as Help to Buy. And they’ve also benefitted from increased availability of higher loan-to-value (LTV) mortgages, as lenders sought to grow this sector in the last three to four years.
But this is set to change as we move into 2021. First-time buyers are now being squeezed by restricted mortgage availability, particularly at high loan-to-values, and growing economic uncertainty, making it harder for them to get onto the housing ladder.
Meanwhile, homeowner appetite to sell up and buy elsewhere is rising as the pandemic forces them to re-evaluate their housing requirements. These buyers tend to be equity-rich, with little or no mortgage, making affordability less of a barrier to moving.
Q. Where are FTBs most likely to be impacted by headwinds in the housing market and why?
A. Weakening first-time buyer demand is being driven in large part by the reduced availability of mortgages at, or over 90% LTV.
But the reliance on high LTV mortgages is not uniform. High LTV lending is most accessible in areas with average or below-average house prices – and so this is where we expect first-time buyer demand to be more affected moving forward.
That’s not to say that London is immune to the effects of reduced LTV lending. And the need for large deposits and a search for space, spurred on by lockdown, may lead to more and more first-time buyers looking outside the capital for their first home.
Q. How will the government’s new restrictions impact the housing market?
A. We’ve already seen how lockdown led to people carrying out a once-in-a-lifetime re-evaluation of their homes and lifestyles, with a focus on prioritising space. And the latest restrictions will continue to support this trend – particularly for those who are more financially secure.
Q. What do you think the rest of the year holds?
A. We’ve seen more homeowners looking to move home – and this has contributed to sales inventory being 10% higher than a year ago. A greater supply of homes for sale increases choice for buyers, weakening competition, and this will in turn keep house price growth in check.
But although demand has been very strong, it is unsustainable. It’s inevitable that demand will slow down.
The level of housing sales this year is set to be 15% lower than in 2019 because the housing market simply cannot make up all the ground lost when it was shut during lockdown.
Q. How is 2021 shaping up for the housing market?
A. There’s typically a three to four month time lag between sales being agreed and completion so today’s deals will run into next year. With buyer demand 39% above the same time period last year, the first few months of 2021 are set to be very busy.
However, the housing market is not immune to wider political issues and economic forces. The continuing Brexit negotiations, the end of the furlough scheme, and the prospect of rising unemployment – these are just some of the factors that will no doubt impact the housing market in the months ahead.
Government pledges 'biggest expansion of homeownership since the 1980s
Here's what you need to know about the Prime Minister's plans to increase the availability of 95% mortgages.
The Prime Minister has promised to help more people get onto the housing ladder through increasing the availability of mortgages for those with small deposits.
In his address to the virtual Conservative Party conference, Boris Johnson said millions of people who could afford a mortgage were prevented from getting onto the property ladder because they could not save the necessary deposit.
In a bid to turn “generation rent into generation buy”, he announced plans for a new scheme to give more people the chance to take out long-term fixed rate mortgages for up to 95% of their home’s value.
On a £200,000 property, this would mean borrowing £190,000 and saving £10,000 to use as a deposit.
Johnson said the government believed it would enable an additional two million people to become homeowners, representing the biggest expansion of homeownership since the 1980s.
Why has Johnson announced the scheme?
The government has already launched a number of initiatives to help more people get onto the property ladder.
But the issue of homeownership has been made more urgent by the coronavirus pandemic and its associated lockdowns.
In the past, 95% mortgages have been widely available, but the majority have been withdrawn by lenders since the pandemic struck.
Addressing the conference, Johnson said millions of people, who were often young, were locked down in rented accommodation which lacked privacy, outside space or an appropriate place in which to work.
He added that while some people were happy to live in a rented home, the majority of people aspired to buy their own place but were prevented from doing so by the need to save a large deposit.
How could it work?
Johnson did not give any further details at the conference about how the scheme would work, or when it would be introduced.
However, if the government is to tempt lenders back into offering small deposit mortgages, it may have to act as a guarantor.
The size of deposit borrowers have is only one part of the equation lenders look at when deciding how much to lend.
They also consider how affordable monthly repayments are once borrowers’ other outgoings are taken into account, both now and if interest rates rise.
And Johnson has suggested in a recent newspaper interview that the government may look at ways for these stress tests to be removed.
Where can first-time buyers turn for help now?
The government already offers a number of schemes to help first-time buyers get onto the property ladder.
Under the Help to Buy equity loan scheme, people can purchase a new-build home with just a 5% deposit, with the government topping this up with a 20% equity loan that is interest-free for five years.
The scheme is currently available to all buyers, but it is due to be relaunched in April 2021 for first-time buyers only.
Other help includes the First Homes scheme, which enables first-time buyers and key workers in England to purchase a new-build home at a 30% discount, and shared ownership, which enables people to purchase a share in a property and pay rent on the part they do not own.
Those aged under 40 who are saving for a deposit can use the Lifetime ISA, under which the government contributes up to £1,000 a year to savers who set aside £4,000 annually towards the purchase of a new home or retirement.
First-time buyers have also benefited from a stamp duty exemption on homes costing up to £300,000, although the chancellor recently announced a stamp duty holiday for all buyers on homes costing up to £500,000 until 31 March 2021.
Top takeaways
- The Prime Minister has promised to increase the availability of mortgages for buyers with small deposits
- The government believes it will enable an additional two million people to buy a property
- Johnson said it would represent the biggest expansion of homeownership since the 1980s
Revealed: the buyers that are set to dominate the housing market in 2021
The pandemic is fuelling a reversal of fortunes for first-time buyers and homeowners, according to our latest House Price Index.
First-time buyers are set to be overtaken by homeowners as the driving force of housing sales next year.
Despite a jump in first-time buyer appetite when the English housing market re-opened in mid-May, demand has tapered off over the last two months, according to our latest House Price Index.
Although first-time buyer interest in stepping onto the housing ladder remains well above 2019 levels, it has now settled back to pre-pandemic levels – and is set to soften further into 2021.
Meanwhile, homeowners were slower to respond immediately after lockdown lifted, but their appetite to move house is 37% higher than pre-pandemic levels and a whopping 53% higher than this time last year.
This reversal will take time to feed through in the housing market – but the gap between mortgaged homeowner and first-time buyer activity is likely to widen further into 2021.
Why is first-time buyer appetite starting to lag?
First-time buyers have been the driving force of the housing market over the last decade, bolstered by the government’s Help to Buy scheme and greater availability of high loan-to-value (LTV) mortgages.
And in 2019, first-time buyers overtook mortgaged homeowners as the most dominant buyer in the housing market.
But restricted mortgage availability, tighter lending criteria and growing economic uncertainty as a result of the pandemic are taking their toll on first-time buyer appetite – and their ability to snap up a home.
Is it the same across the UK?
First-time buyer appetite in September has grown the least in London (1.8%), Yorkshire and the Humber (4.8%) and north west England (9.7%) when compared with the first three months of the year.
By comparison, homeowner interest in moving home has jumped 83.5% in Scotland, 66.2% in the east of England and 65.8% in the south east.
Going forward, it is the regions outside southern England where first-time buyer demand is set to be most impacted, reflecting aspiring homeowners' reliance on high loan-to-value mortgages, particularly at or above 90% LTV.
But London, where high loan-to-value loans are limited to buyers on high incomes or with large deposits, is not immune to changes in lending constraints.
And a greater proportion of first-time buyers in London may turn their attention to commuter areas to purchase their first home.
So why are more homeowners interested in moving?
Homeowners have accounted for an increasingly smaller share of housing sales in the last 10 years, as they stayed put and gradually paid off their mortgages.
But they’ve become more active in the housing market since restrictions lifted, fuelled by the search for more space and a once-in-a-lifetime re-evaluation of housing requirements.
With many homeowners having either no mortgage or a small loan, they also have an equity advantage over other buyers, in particular those stepping onto the housing ladder.
In fact, three quarters of homeowners are over 45 years old and more than half are mortgage-free, so they can potentially make the move as cash buyers.
Richard Donnell, research and insight director at Zoopla, said: “A change in the mix of buyers is supporting market conditions with sustained demand from equity-rich homeowners seeking more space and a change in location.
“In contrast, first-time buyer demand is weakening. First-time buyers have been a driving force of housing sales over the last decade.
"They remain a key buyer group but lower availability of higher loan-to-value mortgages and increased movement by existing homeowners means a shift in the mix of buyers into 2021.”
House building levels nosedive 62% during lockdown
The number of homes being built between April and June plunged as work on building sites was suspended.
The coronavirus pandemic led to a 62% fall in the number of new homes being built in England between April and June.
Only 15,950 new-build properties were finished during the three months, the lowest level since records began in 2000, according to the Ministry of Housing, Communities and Local Government.
It follows a 5% drop in building levels during the first three months of the year, which ended a seven-year period in which the number of new properties being built had been steadily increasing.
Brand new properties already sell for a significant premium compared with homes that are being re-sold, and the fall in building levels is likely to put further upward pressure on prices.
Why is this happening?
Work on construction sites was suspended in March when the UK entered lockdown in response to coronavirus.
When work was able to resume, sites opened in phases and builders had to observe social distancing measures, which reduced the speed at which properties could be built.
But with the UK now facing a second wave of coronavirus and employees once again being told to work from home where possible, construction workers have been given permission to continuing working as normal.
Who does it affect?
While the slowdown in building levels is bad news for anyone hoping to buy a new-build home, it has been particularly stressful for people planning to use the government’s Help to Buy initiative, which ends in its current form on 31 March 2021.
In order to qualify for the 20% equity loan, the property being bought through the scheme originally had to have been built by the end of December.
But the government has since extended the deadline for construction until 28 February 2021 to ensure people do not miss out as a result of building delays caused by the pandemic.
The current version of Help to Buy will be replaced by a new scheme, which is limited to first-time buyers, on 1 April 2021.
What’s the background?
A total of 147,180 new homes were built in the year to the end of June, 15% fewer than during the previous 12-month period.
But construction is only one way in which homes are added to the housing stock, with residential properties also created through the conversion of agricultural and industrial buildings, as well as dividing up large houses into smaller units.
Government figures show an overall increase of 243,720 homes in England during the period, at the lower end of the range of between 240,000 and 340,000 new homes that are needed each year to keep pace with demand.
Top three takeaways
- The coronavirus pandemic led to a 62% fall in the number of new homes being built between April and June
- Only 15,950 new-build properties were finished during the three months - the lowest level since records began in 2000
- The deadline for Help to Buy has been extended to ensure people do not miss out as a result of building delays