Mortgage approvals rose to the highest level in just over 13 years in October, according to data from the Bank of England, and were up a third on February’s level. Increasing demand has frustrated anyone hoping to secure a bargain in the wake of the pandemic - sales prices rose 7.6 per cent in November, according to the Halifax House Price Index, the strongest growth rate post the Brexit referendum. Buyers are not just fending off competition from other residential occupiers either, but investors, who in November accounted for the highest proportion of sales in four years at 15 per cent, Hamptons International has said.
The ferocious demand for properties following the stamp duty break has overwhelmed the property industry, from brokers and mortgage lenders to estate agencies and conveyancers. That has resulted in lenders restricting the availability of products and increasing mortgage interest rates in a bid to cope with the surge in applications from borrowers. Those with smaller deposits, typically first-time buyers, have been worst affected by this. So perhaps a reduction in demand could not only ease the heady rise in sales prices, but also prompt lenders to expand the range of mortgages they offer at a loan-to-value of 90 per cent or more.
Zoopla estimates the market will be in for a bumper first quarter in 2021, with around 100,000 transactions spilling over from the end of this year. Yet after that activity seems likely to fall, which could take some of the heat out of sales prices. More surveyors saw an increase in buyer enquiries than those that did not last month, according to the Royal Institution of Chartered Surveyors UK residential market survey, but that gap had narrowed substantially from October. Expectations for sales volumes over the next 12 months were negative. A more dramatic fall in house sales prices will depend on the extent to which forced sellers emerge as unemployment rises, as expected, next year.
There are already signs that mortgage availability has begun to improve. At the start of December, mortgage availability had improved for the second consecutive month, with products at 85 per cent and 90 per cent LTV rising by 15 and 58 per cent, respectively, although still substantially lower than pre-pandemic levels. Admittedly, whether the return of higher LTV products endures, may partly depend on whether lenders’ risk appetite changes after mortgage payment holidays finally end in July and default rates become clearer.
Yet for those that can muster a deposit, activity should also continue to be supported by affordable borrowing rates. While the effective interest rate on new mortgage borrowing ticked up in October, it remained historically low at 1.78 per cent. Perhaps first-time buyers have more reason to be hopeful for 2021.
