New figures published by the Bank of England suggest mortgage borrowing hit an all-time high in March this year. Official data shows that property owners in the UK borrowed around £11.8 billion more on mortgages than they repaid in March, the highest monthly net borrowing total since records began.

Analysts have since commented on the government’s temporary stamp duty holiday as the primary catalyst for the spike in borrowing, coupled with rock-bottom interest rates and the availability of competitive deals.

Borrowers across the country raced to beat the original March 31 stamp duty holiday deadline, which was subsequently extended to September 30. A major spike in borrowing and property purchase interest has resulted in a market described as “on the boil” by Nationwide, which recently published figures suggesting a new average property price in the UK of £238,831, an increase of almost £16,000 since the same time last year.

In total, gross mortgage borrowing for March hit £35.6 billion, fuelled by a wave of last-minute activity as buyers desperately sought to take advantage of the temporary stamp duty discount.

The stamp duty suspension scheme is an undeniable success.

This mad March mortgage data highlights the frenzied rush of people to buy in the second half of last year and save thousands of pounds on stamp duty.

“But the celebrations surrounding the stamp duty holiday may soon ring hollow if the market cools off and people find their savings have been wiped out by the premium they have paid for their property.

While an inevitable slowdown is predicted for later in the year, analysts expect the next few months to bring further house price growth in most key areas of the country. First-time buyers in particular are likely to be motivated by the reintroduction of the 95% LTV mortgage, enabling properties to be purchased with a down payment of just 5%.

Having largely disappeared from the market last year, the return of the 5% mortgage was spurred by the introduction of a new government guarantee scheme for lenders taking part in the initiative. First-time buyers and movers will both be able to qualify under the initiative, which is available for mortgages up to a maximum value of £600,000. However, second homes and buy-to-let properties are excluded from the scheme.

Meanwhile, Bank of England data suggests that consumer saving was particularly strong last month, with approximately £16.2 billion more being deposited in accounts than withdrawn during March. A net consumer credit repayment of £535 million was also recorded.

Mortgage prisoners have been propelled back into the spotlight this week as MPs prepare to vote on an amendment to the Financial Services Act that would result in an interest rate cap for borrowers locked into uncompetitive mortgages.

Chancellor Rishi Sunak has repeatedly promised to find a “workable solution” for the 250,000+ homeowners locked into excessively costly mortgages, but the Treasury has labelled the SVR cap “unfair,” and Conservative MPs are being instructed to vote against it.

The vast majority of mortgage borrowers in the UK have the option of switching to a more competitive deal at a lower rate of interest with their current lender or by transferring their mortgage elsewhere. If, for any reason, your current deal becomes uncompetitive or unsatisfactory, there is usually the option of switching.

It is, however, estimated that more than 250,000 mortgage payers are currently locked into loans with excessively high rates of interest, from which they cannot escape. The collapse of lenders like Northern Rock resulted in tens of thousands of mortgages being sold by the Treasury to unregulated firms, which do not provide the option of switching to more competitive deals.

Forced to pay significantly higher rates of interest than national averages, mortgage prisoners with an average loan value of £165,000 are estimated to have overpaid £25,000 to £45,000 in excess interest in the course of the past 10 years.

Numerous promises have been made to seek urgent resolutions, but the Treasury continues to frantically lobby MPs not to support an amendment that would result in a cap being placed on interest rates for those affected.

Critics call for a level playing field

Despite repeated assurances from the chancellor and other high-level government figures, little to no affirmative action has been taken to find a workable solution to the issue.

“We need to do something to protect these consumers; we need to do something to bring back some sort of level playing field for people who are in this situation because, through no fault of their own, they took out their mortgages in good faith with fully regulated High Street lenders,” commented Seema Malhotra, chair of the all-party parliamentary group on mortgage prisoners.

“It’s through the government selling off these mortgages without adequate protection to these mortgage loan sharks that has led to this situation. A targeted intervention for this specific circumstance is what’s needed, and it’s needed now.”

Meanwhile, the BBC reached out directly to the Treasury for a statement on the issue and received the following reply:

“We know that being unable to switch your mortgage can be incredibly difficult. But an interest rate cap would have serious market implications and be unfair to other borrowers,” the Treasury spokesperson said.

 

“Many borrowers could now find it easier to switch to an active lender or continue interest-only payments, thanks to recent rule changes by the Financial Conduct Authority.”

“We’re committed to finding practical and proportionate options to address this issue and will set out further steps shortly.”

The return of 95% LTV mortgages is likely to come as welcome news for millions of prospective homebuyers. Across the UK, first-time buyers have found themselves increasingly priced out of the market; this is due to the excessive deposit requirements of most major lenders.

This month, several major banks confirmed their intent to take part in a new UK government mortgage guarantee scheme, enabling them to offer 5% deposit mortgages for the first time in years. Barclays, HSBC, NatWest, and others are all set to begin offering 95% LTV mortgages once again, enabling applicants to qualify with a deposit of just 5%.

How much is a 5% mortgage in real terms?

Saving for a 5% mortgage can vary in difficulty depending on your situation and location. A 5% down payment on a home in Yorkshire and the Humber currently averages around £9,250. This increases to just over £14,000 in East Anglia, £18,000 in the south-east of England, and around £29,000 in London.

Buyers in Wales and Scotland can expect to pay just under £9,000 as a 5% deposit, with Northern Ireland falling to around £7,400.

Affordability will therefore be determined primarily by location as well as your savings and income. In most instances, buyers will still find themselves needing to save thousands to cover both the 5% down payment requirement and the various fees associated with setting up a home loan.

Administration fees, valuation fees, and legal fees are costs that can often add up to a further 1%–2% of the property’s market value.

Tips and guidelines for savers

Representatives of several major banks and lenders have been offering their own tips and guidelines for savers looking to reach the new 5% deposit threshold and take their first step up the property ladder.

While there are no quick-fix shortcuts to amassing considerable sums of money, these tips from lenders offer guidance for people serious about buying their own home.

Carefully consider your financial health

This means taking an in-depth look at your outgoings, lifestyle, income, and debts. If there are any expenses you can curb (or eliminate) or smaller debts you can afford to pay off, it may be better to do so before considering taking on debt.

Set up a dedicated savings account

Put all the money you are saving for your deposit into a dedicated savings account. Separate your finances strategically rather than pooling everything into one collective account.

Set realistic goals

Staying motivated is the key to reaching major savings targets. It is important to be realistic in terms of when you can expect to accumulate the funds required. If it is going to take you several years to save for a deposit, then you must set goals and acquire funds accordingly.

Consult with an independent broker

Last but not least, consulting with an independent broker is a useful way of gauging affordability while also getting to know the new 95% LTV options that are available.

For the first time in years, several major lenders have reintroduced 95% LTV mortgages with a deposit requirement of just 5%.

An initiative aimed at encouraging more first-time buyers to get on the property ladder in England, these government-backed loans are now available from Lloyds, Santander, Barclays, HSBC, and NatWest.

Experts, however, have advised movers and first-time buyers alike to consider stretching to deposits of 10% or more where possible in order to avoid higher interest rates and elevated overall borrowing costs.

A welcome return of the 95% LTV mortgage

Details of the scheme were unveiled by the Prime Minister in this year’s budget, during which the chancellor confirmed that 5% deposit mortgages would be available to anyone looking to purchase a property up to the value of £600,000.

The property being purchased, however, must be the buyer’s only home and their intended place of residence, not a second home or a buy-to-let property. It has also been confirmed that new-build properties will be exempt from the 95% mortgage offer.

Encouraging as many lenders as possible to take part in the initiative, the government has offered a partial guarantee (of up to 15%) in compensation to lenders in the event of non-repayment on the part of the borrower.

Major banks, including Lloyds, Santander, Barclays, HSBC, and NatWest, have already begun offering mortgages with an LTV of 95%, while Virgin Money has confirmed plans to do so in May.

Higher risk, higher interest rates

Upon announcing the scheme, the chancellor acknowledged the difficulties first-time buyers have traditionally faced putting together excessive deposits for home purchases.

“Every new homeowner and mover supports jobs right across the housing sector, but saving for a big enough deposit can be hard, especially for first-time buyers,” the Prime Minister said.

“By giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, boosting the sector, creating new jobs, and helping people achieve their dream of owning their own home.”

Even where the 95% LTV mortgage is now available, lenders will continue to carry out stringent affordability and eligibility checks on applicants. Discrepancies in job status, income, or credit history, even as a result of the effects of the COVID-19 pandemic, could make it difficult or impossible for applicants to qualify.

In addition, 5% deposit mortgage customers have been told to expect slightly higher rates of interest than those attached to mortgages with a lower LTV. Some banks involved in the scheme have confirmed two-year fixed-rate deals at 4%, up to 75% higher than a comparable mortgage with a 10% deposit.

“It reflects the extra risk the bank is taking on. I think over the long term, that is a pretty competitive rate for customers,” said Lloyd Cochran, head of mortgages at NatWest.

“One of the things we do is ensure that the customer can afford that rate. We also ensure that the customer can afford that loan if interest rates rise.”

Landlords in the United Kingdom have for some time been urged by the government to make every possible effort to improve the energy efficiency of the properties in their portfolio. Little, however, has been provided by way of financial incentives for those wishing to do so.

Recent proposals introduced by the government will make it a formal requirement for every home within the private rental sector to have at least an EPC rating of C by 2025 for new tenancies. By 2028, all homes within the PRS, without exception, will need to have a C rating or higher.

In order to motivate buy-to-let landlords to purchase more energy-efficient properties and work towards more sustainable portfolios, Paragon Bank has announced the introduction of an all-new 80% LTV mortgage for new and established landlords. The new range of high LTV mortgages will be available for the purchase of standard rental properties and houses of multiple occupations, on the condition that they currently have an EPC rating between A and C.

It is hoped that the initiative will encourage more landlords to purchase more environmentally friendly properties in order to increase the prevalence of rental homes with an A to C energy rating within the private rental sector.

Slow but steady progress

The most recent MCHLG English Housing Survey indicated that the proportion of homes within the private rental sector with energy ratings of A to C has been increasing significantly over the years. It is estimated that there are currently 1.8 million A to C energy-rated homes in the PRS, up an impressive 272% over the past 10 years.

This, however, also means that around 60% of all rental properties within the sector still have an energy rating of D or lower. While many have welcomed the government’s proposals regarding a minimum A to C energy rating requirement by 2028, others have criticised the lack of direct incentives available for landlords looking to make positive improvements.

The new 80% LTV mortgage available from Paragon Bank will be offered as a five-year fixed-rate loan starting at just 3.99% APR, including £350 cashback, no product fees, and free valuations. The lender also confirmed that the loans would be available for landlords looking to purchase single-self-contained properties and HMOs.

Speaking on behalf of Paragon Bank, managing director of mortgages Richard Rowntree commented on the progress being made within the BTL community towards a more sustainable and energy-efficient future.

“Landlords have made great strides in adding more energy-efficient homes to the PRS or upgrading properties to C or above standard over the past decade,” he said.

“However, more needs to be done as the government moves towards its net zero carbon target by 2050, and landlords have a key role to play in that.”

“Our new range of products at 80% LTV for homes with an energy rating of C or above will be an incentive for landlords to add energy-efficient homes to the sector, benefiting tenants through lower energy bills and the environment through reduced consumption.”

Mr. Rowntree went on to state that it is also the responsibility of lenders to ensure that landlords looking to make conscientious improvements to their properties have access to the financial products they need,” he continued.

“If landlords are to improve the energy efficiency of PRS stock, they need the finance to enable them to do so.

“Making sure there are attractive options to add new stock while recognising the efforts to upgrade existing properties is an important element of this.”

There was further evidence of robust real estate market activity in February, with official data indicating a nearly 40% increase in mortgage approvals compared to the ten-year average.

New figures from the Bank of England show that around 87,700 mortgages were issued for residential property purchases in February, far above the average of just 63,500 over the last decade.

Total mortgage approvals dipped slightly from the 103,700 recorded in November last year and were also approximately 10% down on the 97,400 approvals recorded in January. The figures, however, are still highly reassuring given how comparatively few buyers in February were planning moves based on the government’s stamp duty holiday, which at the time was set to conclude on March 31.

Buyers who acted early had the opportunity to save up to £15,000 on their property purchases. Mortgages approved in February would not have given prospective buyers enough time to complete their purchases before the original deadline.

It has since been announced that the stamp duty holiday will remain in place with the full £500,000 nil rate band until the end of June, after which a reduced £250,000 nil rate band will apply until the end of September. This is likely to result in another significant spike in mortgage lending activity over the spring and summer months.

95% of LTV mortgages return to the high street

Along with the prospect of saving up to £15,000 by avoiding stamp duty, buyers are also likely to be motivated by a new mortgage guarantee scheme recently outlined by the government. The scheme is designed to encourage lenders to reintroduce 95% LTV mortgages with just a 5% deposit requirement, paving the way for property ownership for more first-time buyers than at any point in recent years.

Several banks announced that they would be taking part in the scheme at some point during April, while others immediately took advantage of the government’s offer and reintroduced 95% mortgages right away.

‘Mortgage rates remain low, and with the government introducing a guarantee scheme on high loan-to-values, there will be more choice for first-time buyers, the lifeblood of the market,’ one commenter said.

‘With several lenders, including Skipton, Yorkshire Building Society, and TSB, already launching 95 per cent deals, and others expected to follow suit in the coming weeks, rates could also potentially fall, which is further good news for borrowers.’

Total borrowing hits a new six-year high.

Along with mortgage approval volumes, the total amount of money borrowed for residential property purchases also reached a five-year high last month. The figures released by the Bank of England indicate a net total of £6.2 billion borrowed against properties in February, more than any single month since March 2016.

While mortgage rates may have increased slightly since last summer, average interest is still hovering at around 1.9%. Rock-bottom rates are expected to linger for the next few months at least, though they are likely to continue climbing as the UK economy returns to strength.

With the recent budget announcements putting personal and business finance firmly in the spotlight, it has become more important now than ever to focus on the issues facing homeowners and potential new borrowers. With many incomes being significantly impacted by the COVID-19 crisis over the last 12 months, it is anticipated that there will be a sharp increase in the need for specialist mortgage products.

Meeting the strict mortgage criteria necessary for most high-street lenders has become problematic for those looking to purchase or re-mortgage a property. Banks are less willing to accept applications from the self-employed due to them being risky and complicated, resulting in an increased number of clients requiring specialist residential finance options.

This issue does not only affect lower-income borrowers but also those in the high-net-worth category. High-net-worth individuals have seen an increased level of mortgage application rejections and longer delays. Butterworth Mortgages recent research data suggests that as much as 18% were turned down for a mortgage in the last 10 years, which is an increase of 6% from a similar survey conducted in 2019. A significant 51% of applicants who had successfully or unsuccessfully applied in the last 10 years turned down at one time or another.

Securing credit due to complicated income structures appeared to be one of the main issues with applications, with 63% stating they had been rejected for this reason. Also, 78% feel that the rigid methods used by the banks prevent them from accessing financial products, forcing them to look elsewhere.

With confidence in high-street banks stated to be at an all-time low, a huge opportunity has opened for mortgage intermediaries to direct borrowers to the right specialist lender who will be able to cater for clients who have complicated or multiple sources of income.

Mortgage brokers across the UK have reported a steady increase in demand for specialist mortgage products, which, due to the pandemic, is expected to continue to rise. Thankfully, many lenders have adjusted and adapted to meet the changes required, allowing a more flexible and broader approach to applications from a wide range of income source types.