For the UK property sector to make a full return to pre-COVID levels of activity, responsible lending will be key. Alpa Bhakta, CEO of Butterfield Mortgages Limited explains why.
In recent weeks, the UK Government efforts have shifted away from the mere containment of COVID-19 to helping stimulate economic activity back to pre-pandemic levels.
Of course, it won’t be that easy. Although Prime Minister Boris Johnson is currently trying to get employees back into their offices; many remain fearful of the risk of the COVID-19 contagion. These fears, whilst understandable, need to be weighed up against the need for the UK economy to begin its recovery in earnest.
So, what has the government done to sure up confidence in the market?
The impetus we need
Generally speaking, government actions to help lessen the financial burden of COVID-19 and get the British public spending once again have been a measured success.
Arguably the most important initiative in the property sector has been the introduction of the Stamp Duty Land Tax (SDLT) holiday. Until 31 March 2021, the first £500,000 of all property transactions in England and Northern Ireland are now all entirely exempt from the tax, saving buyers from paying as much as £15,000.
Given how the UK’s property industry will be integral to any national economic recovery, it’s sensible that the government should attempt to attract buyers back to the market through tax reliefs.
Although it’s too early to properly gauge this policy’s effectiveness, early signs are extremely promising. Property listing site Rightmove reported a huge 75% increase in enquiries during the two weeks after the tax break’s announcement, and Halifax’s July house price index showed the highest levels of UK house prices ever recorded.
However, it’s important to remember that neither of these figures necessarily translate into transaction numbers. Buyers need proper access to financial services in order to raise the capital needed to finish on property transactions. As such, lenders must act responsibly when considering applications throughout the rest of 2020.
Responsibility is needed
In March, government measures were made to help those who had been immediately negatively affected by lockdown. Those who were still making payments on their mortgages could now access forbearance, meaning they could apply for a temporary mortgage payment holiday.
Participants of this holiday, though, may now find that lenders are denying them access to their products; despite assurances at the time that it wouldn’t impact their credit scores. I recently spoke to the Daily Express about why this may be; explaining how any sign of an applicant’s inability to make mortgage payments will inevitably be seen as a negative mark by lenders.
This can leave some without access to proper financing––or worse––a lost deposit. Butterfield Mortgages Limited recently commissioned a survey which showed that in 2020 alone, 50% of homebuyers and homeowners were denied a mortgage despite having previously received an agreement-in-principle. 31% lost their deposit as a result.
Responsible lending, therefore, is key if the UK property sector wishes to return to its pre-COVID levels of activity. Obviously, no bank or lender should ever approve a loan to an applicant who likely won’t be able to pay it back. However, given current events, participation in the mortgage payment holiday in March should not deny borrowers the ability to take advantage of the current SDLT holiday.
So, regardless of your position, if you’re interested in the comparative discounts on offer via the SDLT holiday, I urge you to speak to your mortgage provider or financial planner to learn about your options. I have full faith that lenders across the UK will recognise the imposition posed by the obstacles laid out and begin reviewing new applications with a more objective lens.
When they do, I look forward to the lending industry fuelling a mighty UK property recovery sooner, rather than later.
This article was written by Alpa Bhakta, CEO of Butterfield Mortgages Limited.
About the Butterfield Group
Alpa Bhakta is CEO of Butterfield Mortgages Limited, part of the Butterfield Group and a subsidiary of The Bank of NT. Butterfield & Son Limited. Butterfield Mortgages is a London-based prime property mortgage provider with a particular focus on UK and international HNWIs.