"Some of the demand we’re seeing right now is based on pre-Covid-19 expectations rather than the new reality."
Mortgage purchase approvals increased to 40,000 in June, up from the record low of 9,300 in May but still below February’s pre-Covid level of 73,700.
Approvals for remortgage (which capture remortgaging with a different lender) have also increased, to 36,900, but remain 30% lower than in February.
On net, households borrowed an additional £1.9 billion secured on their homes in June. This was higher than the £1.3 billion in May but weak compared to an average of £4.1 billion in the six months to February 2020. The increase on the month reflected both more new borrowing by households, and lower repayments. Gross new borrowing was £15.8 billion in June, below the pre-Covid February level of £23.4 billion.
Steve Seal, managing director at Bluestone Mortgages, commented: “Small signs of recovery are starting to be seen across the industry, as mortgage lending picks up and housing markets reopen across the UK. This is largely down to the work of lenders and advisers in supporting borrowers throughout the crisis and helping kickstart market activity.
“The specialist market has also played a crucial role in the recovery of the sector – and it will continue to do so as we emerge from the crisis. Thousands of people have been financially impacted during the Covid-19 pandemic, and many consumers could find themselves in a more precarious financial situation than they were pre-crisis. This could lead to a boom in demand for specialist lending following the pandemic.
“Advisers will be particularly important in meeting this demand. However, support from specialist lenders will be vital to ensure that brokers are well-equipped to advise clients on the financial solutions that are available, both now and after the crisis. This way, the specialist market will be prepared to help the huge numbers of borrowers who require tailored lending solutions later on and further support the recovery of the industry in the long-term.”
Sam Harhat, head of financial services at Andrews Property Group, added: “Since mid-May there has been a huge surge in purchase activity as all the pent-up demand accumulated during lock down has rippled through.
“There is intense competition among lenders at 60% and 75% loan-to-values, and that area of the mortgage market remains well-served and robust.
“At higher LTVs there’s a growing disconnect between what borrowers believe they can get from lenders and what lenders, against an increasingly fraught economic backdrop, are prepared to offer.
“Some of the demand we’re seeing right now is based on pre-Covid-19 expectations rather than the new reality. As a result, even if certain borrowers think they are proceedable, often they are not.
“In February, there was a wealth of 95% LTV products available, today there’s one, maybe two. Even at 90% loan-to-value, there are now just tens rather than hundreds of products.
“Lenders are retreating from more leveraged mortgages in exactly the same way that they did in 2008 during the Global Financial Crisis.
“The stamp duty holiday announced earlier this month is helping those already on the ladder more than those aspiring to get on it. If you can’t get mortgage finance to buy your new home, saving on stamp duty is academic.
“The Government could do worse than consider reintroducing a state-backed mortgage indemnity guarantee on the highest loan-to-value products.
“This would give lenders the peace of mind to continue servicing first time buyers and other borrowers with smaller deposits.”
