Lenders reintroduce mortgage deals as mortgage holidays end

• Borrowers can take advantage of mortgage holidays until July-end 2021
• Mortgage lenders optimistic about post-pandemic business prospects
• Lenders offering reduced rates on 10% deposit mortgages
• British expats face new mortgage challenges due to Brexit

Mortgage lenders expect the number of mortgage repayment defaults to soar in 2021 as the mortgage payment holiday winds down and the demand for home purchase lending declines.

Lenders had introduced mortgage holidays to support homeowners whose income had been affected by the COVID pandemic and were struggling to make repayments due to financial hardship.

According to UK Finance, approximately 1.8 million people took advantage of the mortgage holiday scheme, with one in six mortgage repayments being deferred in June 2020 alone.

The scheme has also been extended until July 2021 due to the pandemic’s ongoing impact, which caused British Prime Minister Boris Johnson to impose a third national lockdown in the UK.

Homeowners who had not previously applied for the scheme can now speak to their lenders and request to join, while those who are already involved can benefit for an additional six months.

However, UK Finance has reminded borrowers who want to take advantage of the mortgage holiday to apply before February 2021 to be eligible.

Previously, the UK government assured homeowners applying for mortgage payment deferrals, or “mortgage holidays” that their credit rating would not be affected; however, new details suggest that this may not be the case.

Managing Director of the mortgage broker, Coreco, Andrew Montlake, said: “Many people are finding that the fact they’ve taken a mortgage payment deferral previously is now creating a challenge for them when they’re applying for a new mortgage.”

While the mortgage deferral does not put a black mark against your credit score, some lenders are taking it into account, particularly for homeowners who want to re-mortgage.

Mr Montlake noted that some mortgage lenders are asking borrowers if they’ve taken mortgage holidays before deciding to give out loans, while in other instances, “some lenders are saying, ‘Well, we’re not even going to switch you to another rate until you’re out of this.'”

Banks and mortgage brokers have become more resilient to the pandemic and are now better prepared for COVID-19 restrictions. As a result, many expect their business to perform better in 2021 than pre-pandemic.

Mortgage lenders optimistic about post-pandemic prospects

According to a research study carried out by Paragon Bank, 68% of UK mortgage brokers surveyed said they expect business operations to continue as usual in the final quarter of 2020, up from 59% during Q2.

Additionally, 23% of participants said their business would perform better than it did pre-pandemic and 46% of brokers said they were worried about the future of their business, down from a high of 66% in Q1.

Meanwhile, the number of mortgage brokers who said they would have to scale back business operations fell from 21% in Q2 to 9% during the last three months of 2020.

However, with Chancellor Rishi Sunak’s stamp duty holiday due to expire March-end, housing market activity could run out of steam and lenders could be forced to compete harder for remaining borrowers.

Hargreaves Lansdown Personal Finance Analyst, Sarah Coles, warned that “more people are set to fall short on mortgage and credit card payments” with the furlough scheme and the stamp duty holiday due to conclude.

She added that the heat is coming out of the housing market and the winding down of support schemes, will likely sap demand for mortgages for house purchases.”

However, high-street banks expect mortgage availability to increase during Q1 of 2021 due to decreased rates.

Most banks expect mortgage prices to decline in the second half of this year as lenders continue to introduce mortgage deals to counter reduced demand following the stamp duty scheme’s termination.

Many lenders are already beginning to reduce interest rates on 10% deposit mortgages and offer greater mortgage options.

Banks offering an abundance of mortgage options

According to recent data from financial information firm, Moneyfacts.co.uk, mortgage availability has risen to its highest level since April. Simultaneously, the number of lenders offering 90% loan-to-value (LTV) deals has jumped to June 2020 highs.

Metro Bank has become the latest lender to reduce rates on its 90% LTV mortgages, reducing the five-year fixed rate by 0.4%.

While Metro Bank reintroduced 10% mortgage deposits earlier than some of its competitors, the rate was relatively high at nearly 4%.

The banking firm is now offering new mortgages at a rate of 3.59%, while those looking to re-mortgage property can do so for 3.64%.

The retail and commercial bank joins NatWest, HSBC, Coventry Building Society, Lloyds Bank and Nationwide, among other UK banks offering discounts on 10% mortgage deposits.

If you’re considering changing your mortgage, Moneyfacts.co.uk top mortgage deal for this week is Yorkshire Building Society’s 90% LTV 2-year fix – only available to homeowners who want to re-mortgage their property.

As of writing, Yorkshire Building Society is offering this deal with a GBP 495 fee which can be paid upfront or added to the mortgage borrowing, free valuation and legal fees and GBP 750 cashback.

The financial services company is also permitting overpayments as part of this generous incentive package.

The increase in the availability of mortgage options is a sign that lenders are confident about their prospects this year, despite the possibility of lockdown restrictions in the UK being extended.

Activity in the UK property market has been fuelled by pent-up demand caused by lockdown restrictions, and Rishi Sunak’s stamp duty holiday, which has made many mortgage brokers more confident about the long-term outlook of their business.

Some experts also believe that the accelerated vaccine rollout in the UK will cause renters and buyers to return in floods once lockdown restrictions are lifted.

However, the same can’t be said for British expats who face new challenges as a result of Brexit as some lenders are barring anyone with an overseas address from switching to cheaper deals.

Chris Sykes, a mortgage consultant at Private Finance, said lenders are denying British expats living in the EU standard residential mortgages due to new Brexit trade rules.

Mr Sykes condemned the move, stating, “lenders would be fools to discount a whole market of clients who are and have been, perfectly viable candidates for their mortgages.”

British expats residing outside of the EU are believed to be an exception. However, anyone who lists their home in Europe as a correspondence address on their mortgage account for their UK property is expected to be impacted by the Brexit policy change.