Today we are going to answer some of the questions you may have regarding mortgages during such uncertain times. Before we get into this however we would like to offer our best to all our customers of past present and future. We sincerely hope you, your family and friends are remaining fit and well. You’re understandably fed up of hearing the same words over and over again, but please; stick to the lockdown rules. It might be a pain in the short term but the country will benefit in the long run.
Are we still working during lockdown?
Yes, we certainly are (at least we’re trying to)! We are of course working from home in order to keep team members safe. Whilst some are making the most of furlough, others are available for phone calls and emails. We are here to help and advise you as best we can whilst the country remains in a difficult situation.
House sales and purchases are difficult at present. Due to the social distancing guidelines as set by the British Government, Estate Agents, Lenders and Surveyors are unable to carry out valuations. On the plus side both remortgages and relevant mortgage related insurances can be delivered and completed remotely.
Our Mortgage Rate predictions when we begin moving out of isolation;
Although the Bank of England base rate has dropped, lenders have not passed this across to new, fixed rate deals. Obviously tracker and variable rates have dropped as per contract and this is something, as mortgage advisers, we would have expected to occur. At Good Mortgage Solutions we suspect rates will stay low for now. Although they have jumped slightly, this is only because lenders have restricted lending, a lot of mortgage products have even been withdrawn. If you are trying to borrow more than 75% of the property value, then your options are reduced from the normal product rage.
Where do we see the economy in terms of mortgages, 6 & 12 months from now?
We think there are two possible options, both of which are poles apart. Let’s begin with the less attractive outcome:
It’ll be Bigger than the ‘Great Recession’
It is our opinion that a recession in the near future would make that of 2008’s look tame! Lasting five years, this world in its entirety was hit with a credit crunch. This hard time meant a prolonged period of low and negative growth alongside the ever increasing numbers of unemployment.
But what caused the Great Recession?
Primarily the problems started with the global banking system. Becoming short of funds, banks were fast losing confidence and lending became sparse. Exporting declined, house prices dropped (resulting in negative equity for many) and the Euro began causing issues based on exchange rates.
As stated in the Guardian, by April 2009, data suggested the economy shrank by 1.9%. This is said to have been the worst dip since 1979. Additional statistics include:
- 2.2 million unemployed, the largest 3-month rise since 1981
- BT cut 15,000 positions
- Corus mothballed putting 2,000 jobs in jeopardy
- Honda employees accepted a 3% pay cut
- British Airways staff members were asked to work for free due to a £401m loss
- 33,000 lost their companies in a 4-month period
- The construction industry shrank dramatically
The list of doom and gloom during this time continues. So what do we think could happen should such hard times be repeated?
A Recession After COVID-19
It’s certainly difficult writing this prediction, but all the same it’s a factor that must be taken into consideration. Having an idea of what the future potentially holds means we can aim to somewhat plan.
Here’s what we think:
- Economic output in the UK will dramatically drop
- Many retail outlets will close
- Many small, medium and large companies will be required to close their doors
- Unemployment could potentially double (and this is a generous estimate)
- The rise in unemployment will add further strain to the benefits system
- House prices will fall
Such drastic falls across all areas of the economy is a very scary prospect. It’s definitely time to move on to some optimism!
Polar Opposite: Spending Increases Across the Board
The second scenario we believe is possible, is that people will go berserk in terms of spending. Having been in lockdown for an extended period of time, the general population aren’t (on average), spending as much as they usually would. Think about it; how many people, right now are simply waiting for restrictions to be lifted in order to book a holiday? Sitting at home for hours on end, day in, day out, leaves us with a few extracurricular activities:
- Shopping Research
- Basic Home Improvements
- An Hours Walk a Day
People will be desperate to upgrade their cars, not to mention the younger generation who have recently had to put their driving lessons and tests on hold. Others will be keeping their eyes closely on the house of their dreams, just waiting to get the ‘For Sale’ sign up in order to place an offer. After 3 months in the same 4 walls do you want a change? You realise the house is not big enough… Or is it too big?
We believe if this situation occurs, the country and possibly the world will receive a fast, sharp, cash injection. This will potentially trail off accordingly as the UK/world takes note of how vulnerable we would become should anything suddenly change for the worse, again.
Will post COVID-19 prove beneficial to first time buyers?
This heavily depends on property value. We certainly don’t believe the circumstances will help lenders. They have to worry about house value reductions and leaving people in negative equity, effectively placing them in a precarious position. In addition, we have no idea how lenders will react to people on furlough and a reduced income. Points like these will take time to be clarified and the relevant guidelines put in place.
We also have to consider the position of self-employed first time buyers. Looking at 12 years ahead, it’s likely that many self-employed will have taken a massive reduction in income. This is certainly going to affect mortgage applications based upon existing requirements.
We will of course update you further on this aspect as soon as we have the relevant information.
What are the positives for those looking to move?
The biggest and main positive could be the potential reduction in house prices. Of course this is beneficial to the first time buyer and not the buyer and seller chain. That said, any reduction received on the sale of your house will be passed onto the home you are buying, technically (and hopefully), evening out.
The main issue people face when looking to move in the next 6 months/after lockdown relates to the amount of available stock. With the country in lockdown, stuck inside their homes for 23 hours of the day, potentially, many will consider a move when this is all over. Should there be a rapid incline in houses for sale, house value becomes restricted. It’s almost a catch 22!
Let’s wrap it up!
Not all doom and gloom; we remain as ever, optimistic. The main thing we can do right now is try to stay positive whilst looking into the options of a potential fallout. For now, we remain in isolation and at Good Mortgage Solutions we are here for you. Moving forwards we shall bring you the right information as and when we have it.