Post-Lockdown (2021) UK Mortgages: a Generalisation Theory

The catalyst for the recent turmoil in the mortgage market is, we can all agree, unprecedented. But the resultant situation that faces mortgage lenders isn’t. Far from it.

You only need go back to 2007/2008 for a recent example of lenders facing a similar scenario.

Back then, global money markets collapsed, plunging not just institutions but countries into financial uncertainty. Their banks had to make decisions whilst surrounded with looming recessions and a future of unknowns.

The same is true as we look ahead today. The question is, what are banks and building societies doing differently this time around?

The Big Change in Homeowner Priority

With lockdown after lockdown, we’ve seen a drastic change in homeowners’ priorities. With remote working a huge part of the new normal, inner city living has lost its appeal for many.

Why take a mortgage on a one-bed apartment in the city, when the same money can buy space in the suburbs and beyond?

COVID has helped shape what homeowners consider priority. And with the transcendence of remote teamwork this last 18 months, it is a permanent solution for many businesses.

This transformation is especially true of banks. They struggled to adapt at first. But, since getting the formula right, they’ve been amongst the forerunners in announcing permanent remote working.

The advantage of having employees comfortable working from home hasn’t passed such businesses by.

Media outlets have picked up on the exodus trend, labelling it the ‘Race for Space.’ And, no: this race has nothing to do with the Chinese Space Station.

This moniker is all about the working populace moving to the suburbs. With reports of a 10.9% annual house price hike, demand is outstripping supply. This is another surprising factor helping to mitigate the ‘lull’ forecast many thought would beset the housing market.

New Lending Criteria, for Everyone

Lenders have responded, and taken on new criteria for this brave new world in which we find ourselves.

The industry in which a mortgage applicant works is now a critical factor. Contractor, permie, freelancer, director: everyone falls under this new scrutiny.

Make no bones, swathes of certain industry sectors face extinction on the back of the pandemic. Lenders know that, as well as we do. So, the industry in which you work is now a factor in your risk assessment.

Alongside that, what happened to you over lockdown(s) may also hinder your progress.

True enough, payment holidays and furlough may not directly affect your credit score. But lenders will want to know all about your work history that period. Plus, they’ll ask what you intend to do to stave off applicable restrictions in the future.

On these scores, at least, all homeowners on a level playing field.

Low Deposit Borrowing

Reminders of ‘mortgage prisoners’ and a generation who struggled to access the housing ladder post-2007/08 still smart. Thus realising, the government acted swiftly this time to help the housing market, on two counts.

Both solutions centre around government-backed 5% deposit mortgages, which rolled out in Spring 2021.

The first sector that these 95% LTV mortgages help is first-time buyers. 5% deposit mortgages disappeared for almost a year, scuppering many young homers dreams overnight.

Secondly, the new government mortgages help existing homers who now crave space. With the swiftness of the pandemic’s impact, those who previously had no plans to move hardly had time to save a huge deposit.

All told, the government seems to have accommodated all market sectors, right?

The Familiar Sting in the Tail for Contractors and the Self-Employed

You’d think so. The current market has:

• low deposits, from 5%,
• high demand, and
• the rest of June left for the Stamp Duty Holiday to run.

So, on the face of it, good news.

But, here’s what the headlines won’t tell you.

Lenders are, or will be, in a position to pick and choose only the best borrower profiles to whom to lend.

That means lowest risk, highest deposit, and perfect credit scoring applicants will make a new “Super Borrower.”

Contractors and freelancers may tick some—or even many—of those boxes.

But, at branch level, advisors may see the ‘short contract’ element for contactors or ad hoc working style for freelancers as (unnecessarily) high risk.

Anyone self-employed needs a good broker on their side now more than ever. The ‘Race for Space’ has a finite time limit. And, the greater city dwellers yearn for the suburbs, the slimmer pickings borrowers will have, over time.

If you only have a 5% deposit, the interest rate might be (comparatively) punitive. But, if you really want out of the city, it might be a price worth paying. Those leafy suburban idylls won’t be underpopulated forever.