11 mortgage predictions for first-time buyers, homeowners and buy-to-let landlords in 2021
Whether you’re a first-time buyer or experienced property investor, 2021 has largely been a year to forget – with mortgage deals disappearing and countless homeowners needing to take out payment holidays in the wake from the COVID-19 outbreak.
The outlook for 2021 may largely depend on what happens with the pandemic, Brexit and the economy in general, but there are a few promising signs in the mortgage market for the ones from a more optimistic persuasion.
Here, we make 11 predictions on mortgage trends that may affect first-time buyers, homeowners and landlords in 2021.
First-time buyers may have a happier new year
1. Rates on 90% mortgages will begin to drop
It’s strange to consider that even as March, first-time buyers having a 10% deposit had 779 mortgages to choose from. By October, that figure had fallen to just 51.
But now there appears to be light at the end of the tunnel. In November and December, a number of lenders relaunched their 90% mortgages.
Rates remain significantly greater than before the pandemic, but greater competition could bring cheaper deals within the new year.
With this in mind, the image for first-time buyers might look considerably rosier by the spring.
2. Low-deposit mortgages won’t return anytime soon
With uncertainty over COVID-19 and Brexit set to continue, it might be a surprise if banks relaunched their 95% mortgages in the first 1 / 2 of 2021.
This means first-time buyers will have to save for extended to secure a 90% deal, people for assistance from the Bank of Mum and pa, or look at alternatives such as Assistance to Buy.
In October, the federal government pledged to make low-deposit mortgage deals extensively available as part of a drive to help two million first-time buyers on to the ladder. We’ll hopefully get an update on efforts in 2021.
3. Banks could boost borrowing power
The Bank of England is performing a review of its mortgage rules, which cap the number of mortgages offered by four-and-a-half times the applicant’s annual income or higher.
A relaxation of those restrictions might boost the borrowing power first-time buyers.
4. The assistance to Buy scheme may be a slow burner
The new version of the Assistance to Buy scheme will launch in April, this time around restricted to first-time buyers and with regional price caps.
In theory, this means first-time buyers can jump on the ladder with a 5% deposit, however it remains seen whether developers will build Assistance to Buy properties in significant volumes the margins are likely to be smaller.
The success from the scheme will also require lenders to offer Help to Buy mortgages, so it’ll very much be considered a case of ‘wait and see’ during the first 1 / 2 of the year.
Will remortgaging become easier in 2021?
5. All eyes is going to be on the furlough scheme
The furlough scheme is placed to run until the end of April 2021, and what happens once it closes have a significant effect on people looking to remortgage.
Millions of homeowners saw their mortgage options limited in 2021, with banks reluctant to lend to people who’d been furloughed by their employer.
This resulted in for a lot of, your best option was to switch to another cope with their current lender – potentially missing out on better rates elsewhere.
If the economy is constantly on the struggle and unemployment rises, millions of homeowners could again see their options limited in 2021.
6. Payment holidays and credit reports is a hot topic
Mortgage payment holiday applications have been extended to the end of March 2021, and how banks approach mortgage lending following this date is going to be crucial.
Payment holidays won’t be registered as missed payments in your credit history, but lenders will be able to see if you’ve were built with a payment holiday when you apply for a mortgage in the future.
At this stage, we don’t know whether people who’ve taken out payment holidays will discover it harder to gain access to, but exactly how banks approach this will dictate the remortgaging options available to countless homeowners.
7. Home loan rates will stay cheap – for individuals who can get them
High loan-to-value (LTV) mortgages dried out in 2021, but rates have remained attractive for borrowers with greater amounts of equity in their home.
If you’re remortgaging at 60% LTV, you may still secure a two-year fix with a rate of approximately 1%, or 1.2% at 75% loan-to-value.
With the bottom rate unlikely to rise in the next couple of months, home loan rates will stay very attractive – for those who can get them.
8. Homeowners will borrow more for renovations
2021 was the year when people spent much more time in your own home, and the pandemic is different the way that we percieve our properties.
For many, that’s meant rushing to move home considering the stamp duty holiday, but those staying put may need cheap home loan rates to gain access to more to renovate their homes.
A survey by Natwest discovered that while only 19% of individuals remortgaging do so primarily to finance home improvements, 62% would consider switching deal again to renovate their properties.
Mortgage predictions for landlords in 2021
9. The stamp duty cut won’t bring a home loan boom
Buy-to-let landlords in England, Scotland and Northern Ireland can all make the most of the present stamp duty cut – but there’s unlikely to become a rush in mortgage applications from investors prior to the end of March.
Data from Hamptons shows that while landlord purchases made up 15% from the market in November – the greatest level for 4 years – an archive 51% of purchasers were cash buyers.
This implies that we’re prone to see larger portfolio investors searching for discounts between now and March, rather than smaller landlords who require finance.
10. Rates will fall, but don’t expect major January sales
Buy-to-let mortgage rates have risen slightly because the start of pandemic, from 3% typically in March to three.09% in December, but there are signs that costs are coming down again.
A handful of lenders, including Accord and Coventry Building Society, reduced their rates in December, and more may follow in January.
It’s likely that we’ll see relatively small rate cuts rather than major sales in the early a part of 2021, and lenders may look to entice landlords with fee-free and cashback incentives instead of headline-grabbing rates.
11. Landlords could keep their options open
A last year, we predicted that landlords would lock in shorter-term mortgages in 2021, with uncertainty around Brexit and also the future profitability of buy-to-let causing investors to be risk averse.
With the additional complexities around COVID-19, the way forward for the eviction process along with a lack of clarity around renting rules after Brexit, it may be a lot of same in 2021, with landlords keeping their options open if you take out two-year fixes instead of longer-term deals.
