What the reopening of the property market means for mortgages

The property market in England has been given the green light to get moving, prompting a sharp increase in mortgage enquiries from homebuyers and those looking to remortgage.

OnTheMarket looks at the what the reopening of the property market means for the mortgage market.

Mortgage market reacts positively to English housing market restart

Housing Secretary Robert Jenrick announced that estate agents could reopen their offices from 14 May, and that valuations and viewings can now proceed, as long as social distancing guidelines can be followed.

The mortgage market responded positively to the news, with lenders starting to reinstate products that they removed temporarily when the lockdown was first announced.

Many of these were mortgages for buyers with small deposits, looking to borrow from 85 per cent up to 95 per cent of the property value.

High loan-to-value mortgage products were withdrawn

Lenders usually require a physical valuation of the property if buyers are borrowing a significant proportion of its value, but as surveyors were unable to visit homes, these products had to be withdrawn.

According to research by financial website Moneyfacts.co.uk, the number of two-year fixed rate deals available to those looking to borrow 90 per cent of the property value fell from 294 in March this year to just 24 in May.

Similarly, the number of five-year fixed deals for buyers with a five per cent deposit plummeted from 142 in March to 11 in May.

Number of high loan-to-value products set to rise

The reinstatement of physical valuations means that lenders can now increase the amount they’re able to lend, which should mean the number of mortgage products available will start to creep up.

For example, Yorkshire Building Society last on 15 May re-introduced lending up to 85 per cent of the property value, having restricted it to 75 per cent in March, and launched a range of new fixed rate purchase and remortgage products.

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Eleanor Williams, spokesman for Moneyfacts, said: “We are now beginning to see lenders relaunching products within their ranges, and some providers have eased the loan-to-value caps they put in place early in the crisis. Mortgage lenders are still open for business and, for those eligible, rates are low.”

Buyers take advantage of low fixed term mortgage rates

Following the re-opening of the property market, buyers rushed to research mortgage deals, with comparison website MoneySuperMarket reporting an 18 per cent uplift in visitors looking for mortgages compared to the week before.

Although the fall in the number of deals means that currently they have less choice than previously, mortgage rates are exceptionally low.

According to Moneyfacts, the current average two-year fixed mortgage rate is 2.09 per cent, and the average rate for a five-year fixed rate mortgage is 2.35 per cent. To put this into context, in March this year the average two-year fixed rate stood at 2.43 per cent, while the average five year fixed rate was 2.74 per cent.

Average rates on high loan-to-value products go up

But for those looking to borrow 95 per cent of the property value, average rates have increased slightly by 0.10 of a percentage point for two-year fixed rates and 0.04 of a point for five year deals, to 3.36 per cent and 3.62 per cent respectively.

Ms Williams said: “The fact that average rates in the highest loan-to-value bracket have increased is probably due to the small number of products remaining in the market leaving a significantly reduced sample size, and also the fact that these products are priced according to the higher risk to lenders when borrowing with only a 5 per cent deposit or equity.

“First-time buyers are therefore likely to feel the effect of the current circumstances even more keenly than most.”

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