‘It was torturous trying to buy my flat during the pandemic’
Hazel Bruce’s mortgage in principle was slashed by £40,000 after furlough, says Ruth Bloomfield
When Hazel Bruce began house hunting at Christmas 2019 she thought that her finances were very much in order. But the realities of trying to negotiate a deal in the midst of a pandemic proved to be a roller coaster.
Bruce, 24, found a flat she loved at the start of last year. She had been living with her father near Crystal Palace and saving for a deposit. She also had some money from an inheritance behind her. This meant that she was in the “very lucky” position of having £267,000 to put down on a flat.
She decided to use a mortgage broker to find her the best deal going — “I honestly didn’t trust myself” — and lined up a £115,000 loan, which represented just over four times her annual salary.
Agreeing the sale was complicated, however, and it was not until last summer that she was ready to proceed. Her lender then asked to check over her latest pay slips and discovered that Bruce, a senior account executive for a public relations firm, had been put on furlough in spring, cutting her income by 20 per cent. Her lender, Halifax, slashed her mortgage offer accordingly, leaving her with a black hole of about £40,000.
“I felt that it was slightly harsh at the time, but I could understand why they did it,” she said. “I wondered if I should just give up, I didn’t know if I was going to lose my job, but in the end I borrowed from pretty much every member of my family. It was a bit tortuous.” Eventually Bruce was able to buy the £382,000 property and is loving settling into her first home. She picked a two-year fixed-rate mortgage without worrying too much about interest rates. With a relatively small loan like hers a percentage point here or there makes little difference to her monthly bill, which is a very manageable £300.
The good news for other first-time buyers is that those with small deposits are in the best position to buy a home since the pandemic first took hold, according to industry experts.
The mortgage crunch that defined last year’s market — with young buyers with limited cash pots squeezed out in favour of “safer” borrowers moving up the property ladder — is relaxing.
According to research from moneyfacts.co.uk there are currently 277 deals on offer for buyers with a 10 per cent deposit, and that number is increasing week on week.
“The situation has been progressively improving for the past few months,” says Ray Boulger, senior technical director at mortgage broker John Charcol. “As 90 per cent mortgages have come back into the market, competition is coming back too.” The bad news is that the cost of servicing a 90 per cent mortgage is still higher than it was pre-pandemic. Moneyfacts found that the average cost of a two-year, fixed-rate mortgage is now 3.5 per cent, almost 1 per cent higher than last year. A typical five-year fixed-rate mortgage will cost 3.68 per cent, 0.77 per cent higher than average rates in
February 2020.
Boulger’s advice to buyers is to plump for a five-year deal if possible. “There is relatively little difference … [in interest rates] … between two and five-year fixes, so for first-time buyers planning to stay in their property, it makes sense to fix for five years rather than risk not being able to remortgage … [at a competitive rate] … in two years’ time. All the signs are that interest rates will remain low for a while, but things do change and by definition these
things are unexpected.”
Will the Budget make a difference?
Chancellor Rishi Sunak’s Budget today could bring important news for buyers. Last year, Boris Johnson pledged to turn “generation rent” into “generation buy” by reintroducing 5 per cent deposits.
The average London first-time buyer spends £489,098, according to Halifax, which would mean a minimum deposit of just under £25,000. To achieve this there have been whispers that the Government will introduce a mortgage guarantee scheme for buyers needing a 95 per cent loan. “Even if they don’t there is activity in the private sector around schemes to guarantee 95 per cent mortgages,” says Boulger. “I would expect deals to be around in about three months’ time.”
For buyers with a 20 per cent deposit, interest rates are enticingly low. Boulger says that two-year deals start at just under 2 per cent, while five-year deals start at just over 2 per cent. “The difference is pretty small, and if you do have to remortgage in two years you will have to pay fees and could end up worse off,” he says. An exception to all this is, sadly, would-be buyers who are on furlough. “Lenders are generally not willing to accept furlough income,” says Boulger. The self-employed are also still struggling to find finance unless they can prove that their income has not dropped significantly during the past 12 months.