“2020 is something else, right… heaven knows what’s next?”
“How come every time I get level, something new changes the game?”
These may just be two of the most familiar, shared and, nonetheless, frustrated comments echoing around both our community and the UK right now.
StepLadder can’t make the virus go away (we wish we could!) nor do we have a crystal ball to say what’s lurking behind the next corner. But, we can be here for each other. That’s why this business exists.
Let’s talk about most of our Members’ main goal: getting on the property ladder in a post-lockdown world.
There’s a lot of noise out there about market conditions, employment woes and the counterbalancing ‘restart’ packages the government is introducing.
But really, I’d pay attention to two key things: what’s changed for you & what’s changed in the property market. Then, try to treat the rest like background noise – people at other tables at a crowded restaurant (remember those?).
So, let’s start with you.
What’s on your financial checklist? Probably the same as before - you have income, expenses, debt, savings and goals. How has coronavirus affected these?
First, have your earnings been affected? The number one, most important factor in being able to own your own home is affordability. Being able to repay the mortgage is what lenders need to know. Have you had fewer hours, shifts or commissions? If so, rerun your mortgage capacity and adapt your budget. This may put a particular neighborhood out of reach, but better to know now what the right price range is. Need help with this? Feel free to use Money Advice Service’s free calculator that you can find on our website here [link].
Second, do you have any uncertainty about furlough or an employer’s plans for redundancies? It’s scary – no doubt. But you can use this time to build an emergency fund. If you’ve been some of the lucky ones who have managed to save money during lockdown – with less commuting, less socialising – try to set those funds aside for your emergency fund, rather than going big once lockdown is eased. It may sound less fun – but setting funds set aside can prove a powerful vaccination to any uncertainty that might be looming.
Still, debt and savings are important considerations. It’s no good having an emergency fund in the bank while allowing a debt of nearly equal size to be accumulating. Please, please, if you can, pay off that expensive overdraft (40% charged now by many high street banks - that’s high!!). High interest debt grows exponentially and can become a problem all its own. This sort of debt also acts as a poison pill for many high-street mortgage lenders.
Finally, as far as your personal situation post-lockdown is concerned, have your goals needed to change? Maybe being closer to extended family is more of a priority? Changing where you aim to buy your home profoundly affects what deposit you’ll need. Understanding how life goals may affect your financial goals is a critical step of this personal, post-lockdown assessment. This is a great opportunity to re-check the direction you’re aiming for. And fundamentally, if your goals are the same, stay on track and tune out the noise. You’re buying a home, not trading the market.
Now, what’s changed about the property market that may affect your path to reaching your goals? Well, our answer is: “not as much as you’d think.”
First, let’s talk about the government’s programs, since they seem to get a lot of newspaper ink and TV time.
As first time buyers, for most budgets, the stamp duty holiday announced by the Chancellor doesn’t matter - you were already exempt up to for up to the first £300,000 on properties valued up to £500,000. Now they’ve increased that exemption up to the full £500,000 – but how much does that really affect you? With this in mind, you also don’t need to worry that this recent announcement is temporary. Assess how this announcement really impacts your plans. If it opens up an opportunity, then great, but panic and rush to change your plans if not. Think of the tortoise and hare, and more than likely keep on your original track.
Second, the situation with the mortgage market is probably the most relevant to you right now. Why? Because the banks typically provide 90% of the purchase price – meaning they’re you’re partners when you’re buying. And, needless to say, the banks can be “moody” partners.
While there are plenty of headlines every week on banks’ offers and terms, no one announcement defines the entire marketplace for you. There are two key features that have changed recently: (1) interest rate and (2) loan-to-value.
Interest rates - good news (finally!). Thanks to the Bank of England, they have moved, on average, in your favour as a borrower. This is also likely to remain the case for a reasonable period of time – while economic uncertainty persists.
Loan-to-values – which, by way of refresher, is the amount of the purchase price of your property that a mortgage can cover – have been reduced, on average, versus early 2020. Most commonly, 5% deposit mortgages have largely been taken off the market for now. This means you will need a bigger deposit that you might have originally planned for if you want to move forward imminently.
Lockdown made lenders even more cautious, in part because site valuation surveys – a key part of lenders’ process to approve a mortgage – were on hold. As a result, and to manage their risk on new loans, many lenders reduced their loan-to-value limit for any particular property and buyer.
It’s not personal, but it is a bummer. We also expect – and see early signs – that it is temporary – an initial knee-jerk reaction. As surveys have resumed, loan-to-values offered by high-street lenders are creeping higher again, based on our on-going conversations with mortgage advisors. Also, as the impact of the coronavirus on unemployment and overall lending remains within expected parameters, the lenders want to get back to their main business and are being encouraged to do so by the government.
So, come back again to the tortoise and the hare. 5% deposits may have gone for now, but if you can be patient and wait it out for a little bit, the tides may begin to turn again.
Finally, on the topic of the property market post-lockdown, we will touch on prices. This is the most “crystal ball” area of speculation. Newspapers love big, national average figures and talking about booms and bubbles! Yes, there are more properties coming onto the market at the moment as a result of all this noise, but beyond that, does anything affect you here, and the home you envision for yourself? The specific postcodes where you were already booking viewings, and your ability to afford it? Not really.
At the end of the day, get away from the headlines, and make your own assessment. If any of the stimulus measure really can work for you, then great! But otherwise, stay on your original track: know your goals, understand your current financial situation, and know that StepLadder is on your side.
Matt is the Founder and CEO of StepLadder. He started StepLadder to make a lasting positive impact on UK first-time home buyers and fix a broken system