Mortgage demand and supply – Bank of England report

The first quarter of the year saw continued demand among borrowers, albeit reduced slightly from Q4 2020 due to the uncertainty regarding what would happen to the stamp duty holiday. We had all long suspected that it would be either extended or amended and thankfully we got both and this caused an uptick in demand in the last month (March) of Q1 2021.

During Q1 2021 there has been increased availability of mortgages, especially within the specialist market (bad credit, complex buy to let, bridging finance etc.), as a number of those lenders had significantly scaled back their operation during the pandemic, perhaps a little more than some of the mainstream lenders.

We’ve seen more lenders keen to get money into the market in Q1 2021 compared to Q4 2020 most notably with the return of higher loan-to-value (LTV) mortgages across the board. This in turn has increased demand specifically from first time buyers, who we all know are the life blood of the property market, as first time buyers with smaller deposits have been disproportionally affected by the pandemic in terms of availability of those higher LTV products, which took a long time to return. This was mainly due to lending confidence taking such a hit with the sustained assault on our GDP figures throughout 2020 as lockdowns persisted which lead to concerns about a possible house price crash.

As more lenders returned to higher LTV areas of the market we have seen the pricing of fixed rates begin to improve, most notably in the higher LTV areas as the resumption of more lenders in that arena and competitive nature of the business starts to take effect, however we are not back to pre-pandemic rates and I suspect we won’t be for quite a while, if at all. That said, demand is continuing to increase and we are easily in one of the strongest sellers markets for a long time, pushed on by the availability of new mortgage credit and the stamp duty extension, albeit tiered, to the end of September.

It’s likely that throughout Q2 we will see a continued increase in demand from first time buyers as more lenders return to the higher LTV products that are required for a lot of first time buyers, however I suspect there will be some softening in London and the South East, as the prospect of completing by June 30th is now becoming less likely for home-movers and with the average property price being the highest in the country, the resumption of SDLT over 250k is likely to have an impact. That said, overall demand is likely to continue, partly due to a bounce back effect as the unlocking of our economy continues, thanks to every jab of vaccine administered.

The one thing we do need to address however, is the structural problem of housing availability; whilst it’s great that the housing market continues to rebound and house prices are on the rise (which is great if you already own an asset, not so much if you’re trying to buy one) we should be mindful that successive governments on both sides of the chamber have failed to address the issue of building enough good quality homes for our population.

Until that issue is properly fixed by way of planning law changes and skills training to increase the number of tradespeople that we need to build the homes for the future, it’s likely that demand will outstrip supply and prices will continue to rise.’


Leave a Reply

Your email address will not be published. Required fields are marked *