What now for post-payment holiday homeowners as mortgage deals dry up?

The number of mortgages agreed with homeowners has plummeted by 90 per cent compared with this time last year, Bank of England figures revealed this week, as a frozen housing market and economic fear strangled lending. Described by experts as a "jaw-dropping" slump, the number is barely a third of those agreed at the very depths of the last financial crisis. Remortgage figures - when borrowers switch to a different lender - are also down an eye-watering 42 per cent.

Even brokers admit the figures paint a picture of radical uncertainty.

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"There has certainly been a pick-up in demand from borrowers in June, while lenders have also started to get back into the rhythm of lending, albeit, understandably, with an increased sensitivity to risk," argues Andrew Montlake, managing director at mortgage broker Coreco.

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"We remain for now in an artificial environment created by the government's furlough scheme. When this is slowly withdrawn, we will see the full impact on confidence, among borrowers and lenders alike."

But securing a new deal on a mortgage or remortgage is only part of the problem, one that is based on there being products available to apply for in the first place. As the first tranche of mortgage payment holidays granted to those facing immediate pandemic-based financial hardship come to an end, those coming out of the other side still grappling with money worries while trying to keep a roof over their heads in the new uncertain world will be in for a shock.

New normal

In the past six months, the total number of residential mortgage products on the UK market has dropped from almost 5,000 to less than 2,750.

Those who need to borrow more than 90 per cent of the property's value are now limited to applying for barely a handful of deals, the latest research from Moneyfacts.co.uk shows, with 95 per cent loan-to-value options falling from more than 380 in January to just 14 at the end of last week.

"There has been an overwhelming level of demand from borrowers seeking products in higher-risk, higher loan-to-value tiers, leading to some lenders who had relaunched offerings having to pull them back to ensure their workload could be managed," says Eleanor Williams, a finance specialist at Moneyfacts.co.uk, who notes that lenders themselves have been operating at reduced staffing levels.

"The potential for negative equity issues 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."

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Changing the rules

"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," Ms Williams adds.

"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."

That could mean changing the rules of engagement when it comes to widespread extenuating circumstances like those we're living through.

The risk of gaps opening up across millions of household incomes, or other economic shockwaves, could dramatically affect the affordability decisions the UK's mortgage and underlying property markets are based on."

Nationwide, one of the UK's biggest players, has already tripled the minimum deposit required to secure lending in the wake of the crisis. Homeowners are being warned that they will need to up their game too, reviewing their options much more frequently and carefully to keep up with an industry that will now make almost constant changes to products and lending criteria.

The good news

But those who can secure a new deal should save money. The Bank of England cut the base rate twice in March to an unprecedented low of 0.10 per cent, where it has stayed.

That means average interest rates on borrowing are also down to record lows.

The average standard variable rate (SVR) is down by 0.42 per cent, the average two-year fixed rate has dropped by 0.45 per cent, and the average five-year fixed deal has seen a cut of 0.51 per cent.

With the gap between the typical SVR and an average two year fixed-rate deal now 2.50 per cent, those who have held off switching for whatever reason may be wise to get on with it.

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