Peterborough First-time Buyers Can Now Buy Using 5% Deposit Mortgages

Yet higher mortgage rates could see Peterborough buyers paying a lot more each month for the privilege

Being a Peterborough first-time buyer in the last 12 months has not been an easy thing. Just before lockdown there were 400 ‘5% deposit mortgage’ deals and first-time buyers were able shop around to get the best deal. When the first lockdown hit, 5% deposit mortgages disappeared, meaning that as many Peterborough would-be first-time buyers were about to buy their first Peterborough home in 2020, the rug was pulled from under their feet.

Today, you can count on two hands the number of mortgage deals which allow a 5% deposit. Even worse, the number of hoops one has to jump through to get a 5% deposit mortgage is very high (plus you have to pay handsomely for the privilege, with mortgage rates of at least 4.15%).

In putting down a 5% deposit, you borrow the remaining 95% as a mortgage. These 95% mortgages (or Loan to Value) were very popular with Peterborough first-time buyers before the Credit Crunch. Nearly 1 in 6 mortgages were 90% to 95%+ Loan to Value mortgages in 2007 (15.5%), yet as the Global Financial Crisis hit in 2008/9 that dropped to only 1 in 63 mortgages being in 90% to 95%+ range in 2010 – meaning many Peterborough first-time buyers were unable to buy their first Peterborough home between 2010 and 2015.

Yet in the recent Budget, Rishi Sunak has vowed to back the building societies and banks so that they can offer more of these higher 95% Loan to Value mortgage deals.

Many people have said this will mean there will a Peterborough house price boom – especially as Stamp Duty is extended until September

This scheme is nothing new as a practically identical scheme was launched by George Osborne in the 2013 Budget with his Help to Buy Scheme. Nearly 1 in 5 houses sold in the year after that budget used this scheme, yet Osborne’s was only for first-time buyers and it was only for brand new homes (not second-hand homes). Whilst there’s no doubt this caused an increase in house purchases, many commentators said it was a backdoor method to keep the country’s new homes builders afloat.

The big difference with this new 2021 scheme is that it’s available for Peterborough second-hand homes as well and is open to all Peterborough owner occupiers moving home

Yet, what will the banks mortgage interest rate charge be?

Although no building societies or banks have yet publicised what mortgage rates they will charge, all the High Street lenders including NatWest, Santander, HSBC, Virgin Money, Barclays and Lloyds have stated they intend to offer these 95% LTV mortgages.

Under the Government’s mortgage guarantee to the banks, Westminster will guarantee 20% of any mortgage offered at 95% Loan to Value. In principle, that means that building societies/banks should be able to offer the low mortgage rates as those available to people wanting to borrow 75% loan to value.

At the moment the average five-year fixed rate mortgage is 3.6% with a 10% deposit, but if you have a 25% deposit, you can fix it for five years at 1.63%

However, don’t forget though that the banks will be charged a ‘still to be decided’ amount to use the Government guarantee. On the last Help to Buy Scheme, it was rumoured they were charged 0.9% of the mortgage borrowed, so this cost would have to be passed on to the first-time buyer. I would suspect the eventual rates Peterborough first-time buyers will have to pay will be somewhere in the region of 3%.

This new 95% mortgage/5% deposit scheme is only going to work if the banks and building societies have sensible mortgage rates as it needs to help those Peterborough first-time buyers it was intended to benefit, who are finding it hard work to get on the first rung of the Peterborough housing ladder.

It all comes down to how anxious the banks and building societies feel about the true long-term effect of the pandemic once the furlough scheme ends in the autumn. Only time will tell.

Yet, to give you an idea of the difference the mortgage rates scheme will make on a typical Peterborough terraced/town house…

The average price paid for a Peterborough terraced/town house in the last 12 months was £163,400

Assuming a 35-year repayment mortgage and borrowing that amount on each scenario:

  • At the current best 95% LTV mortgage rate (i.e. 5% deposit) of 4.15% mentioned at the start of the article, that would cost £738 per month in mortgage payments
  • At the current average 90% LTV mortgage rate (i.e. 10% deposit) of 3.6% mentioned in the middle of the article, that would cost £685 per month in mortgage payments
  • At the best 75% LTV mortgage rate (i.e. 25% deposit) of 1.63% mentioned at the start of the article, that would cost £511 per month in mortgage payments

As you can see, quite a difference.

I have to applaud Rishi Sunak for this initiative, yet will it be ‘fields of clover forever’ for the Peterborough property market with the new scheme? No, it won’t.

It will be a good boost to the Peterborough (and UK as a whole) property market. Whilst the mortgage guarantee offers a small portion of security for the lenders, it does focus on the riskiest part of the housing market. Many lenders still have cold shivers of the Northern Rock 125% mortgage debacle from a decade ago and those memories still ring true today.

The fact is these types of mortgages will be a higher risk, even if the Government are underwriting them with their smaller deposits, which will come through in bank’s and building societies higher pricing for these mortgages. Also, the lenders are already at near full capacity trying to get hundreds of thousands existing property sales and purchase deals through because of the Stamp Duty rush over the last 9 months. I await the rates in early April and will make comment again.

If you are a Peterborough homeowner, potential Peterborough first-time buyer or anyone involved in the Peterborough property market and you would like to chat about anything I’ve covered in this article or any of my other articles on the Peterborough property market, please don’t hesitate to drop me a line.

Peterborough Home Buyers £2,033,577 Windfall as Stamp Duty Holiday Stretched to September…

...and new 5% deposit mortgages for Peterborough first-time buyers

The Chancellor Rishi Sunak announced two initiatives to keep the Peterborough property market firing on all cylinders into 2021.

Firstly, the £500,000 zero-rate Stamp Duty band has been extended to the 30th June 2021. After then it will phase down to £250,000 for an additional three months, returning to the pre-pandemic levels on the 1st October 2021. Secondly, Mr Sunak announced a scheme that will allow Peterborough first-time buyers to buy their Peterborough home with a 5% deposit from this April. Let me look at what each initiative means to the Peterborough property market.

  1. Stamp Duty Holiday extension for Peterborough home buyers

Coming out of the first lockdown in the early summer of 2020, there was a lot of apprehension that the British property market would flounder. Therefore, when the Stamp Duty Holiday was announced back in July 2020 to boost the property market, the deadline was set at the 31st March 2021.  Little did anyone know of the snowball effect of people wanting to move because of the initial lockdown in the spring of 2020, the pent-up demand following the conclusion of the EU negotiations with the subsequent ‘Boris Bounce’ and then the Stamp Duty Holiday which made the perfect storm for what has been the busiest property market in Peterborough since 2001/2.

The average stamp duty paid by a Peterborough homebuyer is £1,719

The reason the Stamp Duty extension is important is that many estate agents and solicitors have been warning for the last couple of months that home buyers would pull out of property deals or renegotiate if they could not complete their sale in time before the Stamp Duty Holiday ended.

So, by phasing down the Stamp Duty Holiday, this will allow some breathing space for burdened solicitors and mortgage lenders, thus decreasing the number of buyers pulling out of their property purchase because they unexpectedly have to find up to an extra £15,000 in Stamp Duty when property sales do not complete on time.

There are currently 1,183 properties that are sold STC in Peterborough alone and the vast majority of those will save money on their stamp duty because of this extension

So, what does the Stamp Duty extension mean for Peterborough house prices?

The extension has heightened confidence in the Peterborough property market. The Government watchdog ‘The Office for Budget Responsibility’, has predicted that house prices in 4 years’ time will be just over 13% higher, compared to their pre-Christmas predicted figure of 11% growth (over the same time frame).

  • 5% deposit mortgages for Peterborough first-time buyers

From next month, Peterborough first-time buyers will be able to buy Peterborough homes worth up to £600,000 with a 5% deposit and a Government-backed mortgage with a fixed rate of up to 5 years.

Rishi Sunak wants to turn the millennial ‘Generation Renters’ into ‘Generation Buyers’ and believes this initiative should be able to help two million people get on the property ladder. When we look at what that would mean for Peterborough, I estimate …

5,207 Peterborough people could be helped onto the Peterborough property ladder with these 5% deposit mortgages

The Government backed scheme will be open to Peterborough first-time buyers for 21 months (until the end of 2022) and available from lenders including NatWest, Lloyds and HSBC (plus others to be announced soon). It will be available on all Peterborough homes new or second hand (previous schemes applied to new homes only).

5% deposit mortgages were all but withdrawn from the market at the start of the pandemic in spring 2020 with an almost default minimum deposit of 10% (even as high as 15% in the autumn just gone) putting homeownership out of reach for all but the wealthiest Peterborough first time buyers.

I must admit I found it a scandal that homeownership among the 25 to 34 year olds plummeted from 69% in 1981 to 36% by 2014, although with certain Government incentives and low interest rates since then, that had risen to 41% by last year, but it’s not enough

With so many young families paying huge sums in rent, who could effortlessly afford to make mortgage repayments on the same property, they haven’t been able to save enough for a 10% initial mortgage deposit, let alone 15%.

Yet now with these new 5% deposit mortgages, many Peterborough first-time buyers will be able to afford to buy their first home in Peterborough. Banks will typically lend between four and a half and five times the gross annual income – this means with a modest 5% deposit; many Peterborough 20 and 30 somethings will now be able to buy their first home. Just before I finish this topic, the 5% deposit mortgages will also be available to current Peterborough homeowners who don’t have the equity built up in their existing home – thus helping second or third (or more) time Peterborough buyers as well.

How do both of these changes affect Peterborough buy-to-let landlords?

I know many of you Peterborough landlords are adding to your Peterborough rental portfolio because of the Stamp Duty Holiday and with the extension, you too will save some money from it. The issue of first-time buyer mortgages does mean the demand for private rented accommodation in Peterborough might not be as strong in the coming decade.

Don’t get me wrong, tenant demand will continue to outstrip supply of Peterborough rental properties for the foreseeable future, yet the tenant/landlord balance could alter slightly in the medium term. Peterborough landlords need to take a long hard look at their properties and ascertain if they are fit for purpose both now and into the 2030’s. Tenants are becoming a lot more demanding of what their rental property offers. Wood chip wallpaper, avocado green bathroom suites and kitchens fitted in the 1990’s (or before) simply won’t cut the mustard in the next decade.

The demand from Peterborough tenants for properties with larger gardens, or the ability to keep pets or an extra reception room/garden office to allow them to enjoy their rented home more and also being able to work from home will ensure greater demand for your rental property … and the best bit, they will pay handsomely for that in higher rent.

If you are a Peterborough homeowner, buyer, tenant or landlord and you want to discuss your options on selling, buying or renting a property in Peterborough and the surrounding area, do not hesitate to contact me personally.

As Peterborough First-time Buyers are Being Locked Out of the Peterborough Property Market – Rents Have Risen by 4.1%

With the banks reducing the number of low deposit mortgages (i.e. deposit of 10% and below) since Covid-19 hit in the spring, this has meant that the number of Peterborough first-time buyers has been decreasing quickly, meaning many of those would-be Peterborough buyers wanting to make the first step on the Peterborough property ladder will stay in the Peterborough rental sector.

This has caused demand to grow amongst Peterborough renters for larger homes to ride out Covid, as they hunker down for the long haul to wait for normality to return to the property market. This has caused

Peterborough rents to rise from £665 to the current £692 per month over the last 12 months, an increase of 4.1%.

Interestingly, the opposite is happening in Central London, where the rents tenants are having to pay have dropped by 3.8% in the last 12 months, as demand has dropped like a stone. It appears Central London tenants are looking to move out to the suburbs, in search of bigger homes, gardens and green open spaces. For example, the average rent for a 1-bed apartment in St. John’s Wood currently stands at a very reasonable £1,817 per month whilst a 2-bed apartment in Kensington and Chelsea is currently at an average bargain rent of £3,715 per month (yes, they might be low compared to last year, yet for us in Peterborough, that still seems like a lot of money!). Also, there has been further downward pressure on Central London rents, as many Airbnb landlords have dumped their short-term holiday let properties onto the long-term rental market as the tourism in the capital has dwindled because of the pandemic.

This has been the sharpest drop in Central London rents since the summer of 2009, when the property market was still stumbling from the Credit Crunch.

This means there is a reverse of the trend of the 2010’s (2010 to 2018 to be exact), when initially the London property market was shooting up whilst the rest of the country was in the doldrums. Then, when the rest of the UK did start to rise slowly in 2013, London kicked on even further like a rocket … yet now it appears the opposite is happening.

Getting back to Peterborough, according to the Land Registry property values currently stand 0.8% higher than a year ago; this is split down as follows:

  1. Detached Peterborough homes 1.2% higher
  2. Semi-detached Peterborough homes 1.7% higher
  3. Townhouse/terraced Peterborough homes 1.0% higher
  4. Peterborough apartments/flats 2.3% lower

Yet, do remember, these figures do NOT take into account the prices paid by desperate Peterborough buyers this summer, often paying top dollar to secure the property. This will only filter through in the figures released in the spring.

So, why are the banks curtailing the number of low deposit mortgages, meaning that first-time buyers must find a much larger down payment before they are able to buy their first Peterborough property?

The reason is the banks are fearful of a house price crash in 2021 (although if you recall I wrote about that a few weeks ago and the reasons why that is less likely to happen). They too are afraid of the frothy nature of the property market since the end of the first lockdown in late spring. The bank is lending its own money to buyers and no mortgage lender wants to be holding an enormous amount of these types of high percentage mortgages if house prices fall in 2021, because the bank would be saddled with negative equity and repossession on their hands (and we all know what that did to the housing market in the late 1980’s and early 1990’s as repossessions rocketed).

This can quite clearly be seen in the pricing and availability of low deposit mortgages. As the Bank of England has reduced its base rate to 0.1%, in the last 12 months 10% deposit mortgages rates have actually increased from 2% to 2.8%. Also, when lenders have been offering 10% mortgages throughout the summer, borrowers have had only a 24-hour window to commit before the lender withdraws the mortgage product from the market because of over subscription. As with all economics, if demand is greater than supply, the price goes up. That extra 0.8% doesn’t sound a lot until you realise a first-time buyer would have to pay an additional £167 per month in interest payments on a 10% deposit mortgage, assuming they borrowed £250,000.

However, it’s not all doom and gloom for first-time buyers as there are embryonic signs that the 10% deposit mortgage market could gradually be returning to normal, as I have recently heard some lenders taking up to a week for their 10% deposit mortgage offers to run out. Fingers crossed!

So, what does all this mean for Peterborough landlords? Those Peterborough landlords with properties with gardens and larger rooms will be seeing increased demand. The ability to have pets in the rental property is also an advantage, and depending on the property, can add a decent premium to the rent that can be charged.

One final thought though for all homebuyers in Peterborough, be aware it’s going to be very challenging to get your house purchase through in time to meet the 31st March 2021 stamp duty holiday cut off if you are starting the process in November. Make sure your lender and solicitor have the capacity to meet that deadline and when you are asked for information, you drop everything to provide it. The odd days’ delay here and there will mean the difference between you getting the keys for your new Peterborough home before the end of March 2021 and saving thousands of pounds in Stamp Duty Tax … or feeling a fool from the 1st April 2021 and having to pay the tax!