Where will all of this lend?
Property market is up and running again but mortgages are now going to be harder to secure
A COUPLE of weeks ago, I answered a reader’s question about the opening up of the property market in Scotland.
I looked at how the landscape might be changing in terms of the ways houses are viewed and valued, with more of both taking place online rather than in person. Today, I want to expand this and take a look at how the mortgage market is changing in light of the coronavirus restrictions we have seen over the last four months. In a couple of weeks, I’ll provide some tips for anyone looking to put their house on the market and move, as well as anyone looking to buy for the first time. Paul Gregory, an independent mortgage adviser at Aberdein Considine, believes the market in Scotland is just about ready to burst back into life as restrictions are eased. He said: “Most in the industry are predicting a record month in July as transactions that were put on pause during March, April and May now complete.
“In many ways, it is business as usual again but one thing that has changed is the mortgage market. Banks are still lending, but the deposit levels they are seeking has shifted.
“We have almost become used to 95 per cent mortgages and deposits of five per cent have been the norm, particularly for first-time buyers, for a number of years. However, as things stand today, there is just one 95 per cent mortgage available across the whole UK market – the Scottish Building Society is that sole player.”
At least one lender is prepared to lend up to 95 per cent, which is pretty much where things were before.
But, as Gregory explained, there is a huge catch.
He said: “Only qualified professionals can apply for this mortgage. And the lender specifies this as doctors, dentists, accountants, solicitors, actuaries, optometrists, pharmacists and vets only.
“Applicants need to be qualified, practising and registered with the appropriate governing body. So, for all but professionals in these categories, a deposit of 10 per cent or more is essential.”
There are not a lot of lenders willing to lend with a deposit of only 10 per cent, though.
The Scottish Building Society has a loan available at 90 per cent, as does Bank of Ireland.
There had been a third 90 per cent loan available with Accord Mortgages, but they announced last Monday that they would be withdrawing this particular product for the time being.
Most mainstream lenders are happy to lend 85 per cent, which means that borrowers have to find a deposit of
15 per cent. So, if you’re buying at £200,000, you would need to have £30,000 saved at present.
That sounds daunting but there is help out there for first-time buyers, according to Gregory.
He added: “The Scottish Government recently announced a new multimillion-pound fund to help people buy a new-build property.”
An extra £55million is being pumped into that scheme – called Help to Buy – extending it to March 2022.
The scheme – where eligible purchasers receive an equity loan towards the cost of a new-build home – has helped thousands of people take their first step on to the property ladder so far.
If it’s not a new-build you are purchasing, or the value of the property is a little higher, there is the First Home Fund, where the Scottish Government lends you part of your deposit.
Buyers are still required to fund a minimum of five per cent of the value of their new house from their own funds and loans can be up to £25,000.
This loan will be secured on the equity of the home, is repayable in full at any time and must be repaid if the home is sold. No monthly payments therefore apply.
The other bank that will be getting hit hard for funds is likely to be the “Bank of Mum and Dad”.
Parents, and grandparents, will be digging deep to help their children, and grandchildren, get a foot on the ladder, or help older offspring.
It won’t just be first-time buyers who are hit by the reduction in percentage lending.
Lenders are reacting to a fear that markets might not be quite as buoyant as Gregory believes.
If that is the case, lenders leave themselves open to negative equity loans and all that this entails, so their natural reaction is to limit their exposure by reducing the amount they are prepared to lend.