As the first tranche of mortgage payment holidays granted due to the Coronavirus pandemic come towards their end, the latest research from Moneyfacts.co.uk has analysed the number of available products and average rates on offer across the mortgage market over the turbulent year so far and considers the implications for consumers moving forwards.
Eleanor Williams, Finance Expert at Moneyfacts.co.uk, said:
“The mortgage market has experienced a raft of changes over recent months, as the industry has adapted to the continuing effects of the coronavirus pandemic, which has impacted operational capacity across this sector. Many households too have suffered interruptions or reductions in their household income, and so as the first batch of consumers who took a three-month payment holiday from their mortgage see this come towards an end, they may wish to find out what the picture looks like now.
“Following the Bank of England’s decisions to cut the base rate twice in March, and this remaining at an unprecedented low of 0.10%, average rates have fallen. Since the start of March 2020 through to today the average Standard Variable Rate (SVR) has reduced by 0.42%. Over this same time period the average two-year fixed rate has dropped by 0.45% and the average five-year fixed deal has seen a cut of 0.51%. The difference between the average SVR and the average two-year fixed deal is now 2.50%, so those who have delayed switching may wish to move promptly now, as significant savings could be made whilst rates remain at record lows.
“There has been a steady decline between March and May of available mortgage products of 2,656, with the largest drop in product numbers occurring between 1st March and 1st of April which is the most significant fall in choice since these records begin in 2011. There was a slight “bounce back” between the start of May and the beginning of June with 244 more products becoming available across the market, but sadly this curve has not continued on a smooth upward trajectory over the course of this month.
“The recent product count fluctuations have been mainly focused around the higher-risk, higher loan-to-value (LTV) tiers which can be explained by a number of possible factors. There has been an overwhelming level of demand from borrowers seeking products in these sectors, leading to some lenders who had relaunched offerings needing to pull them back to ensure their workload could be managed. The potential for negative equity issues should house prices slump is now also a spectre. This will be especially disappointing to first-time buyers where there are a limited number of products available to those with a smaller deposit at a time where savings rates fall to new lows.
“Lenders moving forward may need to assess how they intend to approach widespread extenuating circumstances and the risk these may bring to their lending decisions, such as gaps developing in household incomes and also other economic impacts that may directly affect the affordability of household borrowings.
“Those who took advantage of the lifeline of a three-month payment holiday at the beginning of the coronavirus pandemic will now find that this is shortly due to end. While it is now possible to request a further payment holiday extension, for those who are eligible, returning to full mortgage payments as soon as possible is wise in terms of the overall cost to the consumer.
“Borrowers returning to full monthly repayments after a three-month payment holiday could potentially see their monthly mortgage repayments increase by approximately £14.00* per month. Consumers also need to be aware that this does not include the impact on the total outstanding balance and interest accrued. For those who are still struggling financially, talking with their lender and exploring other options such as partial repayment holidays may be a good idea to reduce the long-term financial impact.
“The last few months have been challenging for both mortgage providers and for borrowers alike, however, both have shown a willingness to be flexible in light of difficult circumstances. Lenders have an appetite to lend and keep the mortgage sector moving, which is a vital contributor to the UK economy. The demand for products from borrowers has in some areas been overwhelming and further change may be required on both sides as the aftermath of the pandemic becomes clearer.
“To keep pace with an industry which is making updates to products and criteria with great frequency, consumers who want to review their mortgage options would be wise to consult with an independent and qualified financial advisor to explore the best choices for their circumstances and who is aware of the most up to date options.”*Based on a balance of £150,000 over a 25 year term, on an initial rate of 2.52% (average two-year fixed mortgage rate January 2019), on the assumption that interest and monthly repayments during the payment holiday are recapitalised into the outstanding mortgage balance for the remaining term (not extended), and on the basis that payments will continue on the initial interest rate.