For each of April, May and June, the top search in the residential category has been for ‘Covid-19: Temporary Maximum loan to value (LTV) Restrictions’.
This has been mirrored in the buy-to-let market, where searches focused on LTV restrictions have also been at the top of the list in two of the last three months.
This will come as no surprise to most. While demand for 90 per cent and 95 per cent deals has remained strong, we have all got used to seeing a seemingly endless stream of lenders having to limit the supply of, or withdraw altogether, their higher-LTV products.
The introduction of the government’s furlough scheme has also been an important factor in driving fluctuation in the market.
Lenders have taken different approaches to how to treat the income of furloughed workers for the purposes of affordability tests.
This has been reflected by broker searches: ‘Covid-19: Furloughed Workers’ has been the second most searched-for term in the residential market over the course of Q2.
With physical valuations prevented by the restrictions, some lenders embraced alternative valuation methods such as desktop valuations and automated valuation models (AVMs) – albeit generally only for lower LTV deals.
This too, showed up strongly in brokers’ searches.
But since the lockdown restrictions started to ease in May, the market seems to have started to recover well.
Viewings and valuations have started again, and lenders have started to come back into the market at the higher end of the LTV scale.
Returning to normal
In the residential market, ‘Help to Buy’ has risen back up the list of broker searches, indicating that first-time buyers are coming back into the market.
For buy-to-let, the searches that dominated the list in June – ‘Lending to Limited Companies’, ‘First-Time Landlord’ and ‘Requirement to be a Homeowner’ were broadly similar to those in January and February, in those halcyon, pre-lockdown days.
It is too early to say whether the temporary increases in the stamp duty and land tax thresholds will be sufficient to sustain these early signs of recovery.
There are, unfortunately, significant headwinds to contend with.
The furlough scheme is now starting to unwind and will come to an end in October.
This may prompt an increase in unemployment and in the meantime borrowers’ income may well come under greater scrutiny from lenders, seeking assurance that repayments are sustainable.
In spite of the huge package of support the government has put in place to stave off the worst economic impact, the country could still fall into a long and deep recession on the back of Covid-19. This will have a longer-term impact on employment and incomes, which could in turn result in a fall-off in activity in the property market.
One thing is clear already: the market post-lockdown is going to look very different from the one that preceded it.
The turmoil is set to continue for a good while yet – but the early signs are good that the market can bounce back from Covid-19. The next few months and years will certainly not be boring.