With the lockdown ongoing and the UK government recommending that all housing transactions be paused until it is over, it seems things in the property market are reaching a tipping point. Many banks are pulling back their mortgage offerings in response.
Banks Reducing Loans
Many banks have reduced their mortgage offerings, pulling back any mortgage with a loan-to-value above 60 percent. This is freezing many first time buyers out of the market since many can’t afford large down payments. While remortgaging likely won’t be affected, house purchases will be a headache so long as this bearish attitude continues among banks.
Housing Chains Broken
The recommendations have caused many interruptions in housing chains as some in these chains pull out and leave others in the chain with a major headache. Given the current mortgage options, not many will be stepping in to fix these chains, even with the lower interest rates. Estate agents will be scrambling to try to help clients who have had buyers or sellers pull out. A good estate agent software option may help them find new options to fill these chains.
Worry Over House Prices
Concern over a drop in house prices has been behind the attitude of financial institutions. It may even affect remortgaging since the value of the home may drop. The effect on prices remains to be seen since it hinges on whether unemployment will surge. One major effect will be on new home construction, since when a small drop in value reduces a builder’s profits by a larger margin. This may have a long term effect of reducing the number of new-build properties in the market and cause prices to rise due to higher demand.
Effect on the Market
This attitude by lenders will result in the UK’s housing crisis intensifying as affordable housing becomes scarcer. First-time buyers are being frozen out and many who were looking forward to owning their first home are stuck in rental properties. While the market showed promise early in the year, the sudden drop in demand and mortgages have effectively put the market on ice. While long term effects will depend on how the economy reacts, many potential buyers and sellers may lose confidence in the market and hold off on purchases.
Will Freezing Lending Help?
In the short term, perhaps. However, in the long term it will only reduce the number of qualified buyers and reduce confidence in the market. Many who would have jumped in to buy their first home will instead put off buying until they have better mortgage options available. Estate agents and others in the market will need to do more work. A good estate agent software should be helpful in working with potential buyers.
While the current market is gloomy, the full effects won’t be seen until it reopens. Banks and financial institutions should be prepared for when the lockdown is over. The mortgage options will need to be able to meet consumer demand and help more buyers afford a home.