The Covid-19 pandemic has had far-reaching implications for our working and personal lives, society and the economy. And these consequences have deeply affected the property sector. Upon lockdown on 23 March many prospective buyers purchasing plans were put on hold as the government effectively suspended the housing market.
Figures from the Bank of England show that mortgage approvals fell to a record low in May, while property transactions halved in number year-on-year according to HMRC.
However, it’s not all doom and gloom. Property website Rightmove reported high demand in the weeks following the property market opening back up, indicating that many buyers are still wanting to move. Yet, with a possible recession on the cards, many buyers, particularly those taking their first step onto the property ladder, may remain cautious.
First-time buyers have been particularly impacted by the pandemic, with many lenders withdrawing high-LTV products from the market. And this is a group that already faced challenges getting onto the ladder before the Covid-19 crisis hit.
As lockdown gradually eases and the UK looks to get back to a new normal, a key component will be getting the property market moving again. While the government has made a significant step by temporarily cutting Stamp Duty, we could also see increasing support for Help to Buy and shared ownership developments.
Both government-backed schemes have been popular amongst FTB and have been credited with helping increasing numbers achieve their property goals. As lockdown eases, these two schemes could be vital in helping, not only FTBs but others move up the property ladder. For example, buyers moving from the North to the South who may find it difficult to pull together a large enough deposit due to the property price disparity. Both Kent Reliance for Intermediaries and Precise Mortgages offer products to support these schemes and in doing so, help those that otherwise may not have been able to buy property, to do so.
Brokers who’re used to dealing with higher LTVs could now be considering these HTB and Shared Ownership schemes to help their customers onto or up the ladder. For those brokers, there are some important factors to discuss with their customers:
For customers looking at Shared Ownership, consider whether there are restrictions on how much a buyer can borrow from a particular lender to increase the share they own in the future. Remember to take into account whether other specialist lender has criteria more suited to the customer’s circumstances. If a buyer plans on purchasing more of the property, what percentage do they wish to purchase and at what LTV? These aspects could all affect the rates they are offered.
Make sure they understand the importance of the relationship between the housing association and shared ownership homes and what this means for prospective buyers when they come to sell their home. Some specialist lenders can offer certain advantages here such as the opportunity to purchase 100 per cent share of the property.
For those with clients considering HTB, it will be vital that the customer understands what happens when the interest-free period comes to an end and the interest starts to kick in. For example, with Precise Mortgages, after the first five interest-free years, customers will currently be charged 1.75 per cent on the outstanding amount as interest. This fee will increase each year by RPI plus 1 per cent. The customer only repays the interest, not the equity and they don’t have to repay the equity until they sell their home or reach 25 years – whichever is earlier.
As the world gradually returns to a more stable footing, restoring normality to the property market will continue to be a key focus for the government, and these schemes are likely to continue to play a significant role in helping get buyers back on the ladder.