What’s happened to mortgage deals for home buyers and remortgagers since COVID-19?

Mortgage rates have risen for any third successive month, as lenders suffer jitters about the way forward for the home market.

Since the federal government introduced the stamp duty vacation in July, the housing market has enjoyed an upturn, with increased sales being agreed and house prices rising.

But with no result in sight towards the pandemic and uncertainty over Brexit negotiations, mortgage brokers are cutting deals and increasing rates.

Here, Which? take a look at the mortgage options currently available to first-time buyers, home movers and remortgagers.

Mortgage rates during COVID-19

Since the start of the pandemic, the number of fixed-rate mortgages open to buyers and remortgagers has halved.

Data from Moneyfacts shows as many as 2,774 mortgages are actually available on the market, compared with 5,733 in March.

Home buyers using the smallest deposits happen to be most heavily impacted by the cuts, with 90% and 95% mortgages disappearing almost entirely.

As the amount of deals fell, so too did rates, with the average two-year fixed-rate mortgage dropping below 2% in July.

Rates have finally been rising within the last 3 months, but remain less than those seen before the pandemic, as shown within the graph below.

Why are lenders increasing rates?

The property market has been flying because the government launched the temporary stamp duty holiday in July, but the longer-term picture remains unclear.

Eleanor Williams of Moneyfacts says that home loan rates are rising as lenders look to protect themselves from the risk of defaults in an uncertain time for the economy.

She says: ‘The spectre of negative equity should house prices drop is one that responsible lenders is going to be keen to mitigate, yet have no treatments for.

‘Similarly, uncertainty around future employment levels and income because the government’s support schemes start to unwind is another factor lenders might be considering.’

Increased rates can also be a sign that banks are looking to dampen demand.

Lenders are still struggling to get back to full capacity and therefore are facing a substantial uptick in applications as buyers turn to move before the stamp duty cut ends on 31 March the coming year.

First-time buyers: are mortgage struggles not going anywhere soon?

First-time buyers face a constant find it difficult to get on to the property ladder, as low-deposit mortgages still dry up.

In March, buyers having a 5% or 10% deposit had 304 two-year fixed-rate mortgages to choose from, but that figure has fallen to simply 14.

The deals that remain now include stricter rules, for example capping maximum terms at Twenty five years and limiting gifted deposits from parents.

This means many first-time buyers face needing a first deposit of at least 15% to get a mortgage. For a lb200,000 property, that’s lb30,000 – an amount that may be out of reach for many.

The government has pledged to unlock millions of 95% mortgages for first-time buyers, but it may be a while before efforts arrived at fruition.

Should I delay my move?

In this uncertain time, you might consider putting your plans on hand, providing you with time to boost your savings and reassess the mortgage market next year.

If you’re set on moving imminently, you may want to consider alternatives to standard mortgages, such as guarantor options or schemes such as Assistance to Buy.

If you’re unsure regarding your options, it’s worth talking with a home loan broker, who can assess the whole market to see if any suitable deals can be found, including from lenders you may otherwise overlook.

For example, some buyers have reported smaller building societies offering 90% mortgages restricted to borrowers residing in their catchment area.

Home movers: minute rates are attractive but expect delays

It’s a slightly different tale for existing homeowners, who are looking to make use of the stamp duty holiday to move in the property ladder.

With tax savings of up to lb15,000 available, second-steppers are setting their sights on bigger properties with more outdoor space, but they might face frustrations in getting an offer within the line.

Increased demand has not only brought higher prices, it’s also resulted in delays in your home shopping process – including mortgage approvals.

Rising prices can also impact mortgage valuations. We’ve seen reports more buyers seeing properties down valued (once the lender decides the home is worth less than the customer would like to pay for it).

Can home movers obtain a cheap deal?

As we mentioned earlier, mortgage rates take presctiption an upswing, but buyers with bigger deposits can secure an excellent rate.

The chart below shows the market-leading rates for home-movers borrowing in a range of loan-to-value levels.

Remortgaging: uncertainty remains after COVID-19

If you’re coming to no more your fixed term and therefore are seeking to remortgage, your options will depend on your personal circumstances.

If you’re earning less because of COVID-19, you may find it difficult to switch to another lender, as you’ll be asked to to experience a new affordability assessment.

In this instance, you might be restricted to a ‘product transfer’ with your bank, which won’t require an exam so long as you’re not upping your borrowing.

Switching products might mean you don’t obtain the best deal on the market, however it will still be significantly less expensive than make payment on lender’s standard variable rate.

Those who is able to switch providers can benefit from some of the reduced rates above and could be able to get an even-cheaper deal.

For example, Lloyds Bank provides a two-year fix at 60% loan-to-value by having an initial rate of just 1.09% for remortgagers – considerably cheaper than the 1.2% available to house buyers.

Could negative interest rates be ahead?

The Bank of England base rates are currently in an historic low of 0.1%, and also the Bank has written to several financial firms to ask the way they would cope if rates went negative.

Although it’s theoretically possible, it’s highly unlikely that the move to negative rates would lead to lenders spending you interest on your mortgage.

Many tracker mortgages (which follow the base rate along with a percentage) have disappeared because the lockdown and some of those that remain have ‘collars’ on their own rates, which prevent them dropping beyond a particular level.

The vast majority of buyers and remortgagers take out fixed-rate deals, that are unlikely to be significantly affected by any more base rate cut.