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Banks’ LTV cuts risk making property downturn worse in 2021 – IMLA

  • 14/09/2020
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Banks’ LTV cuts risk making property downturn worse in 2021 – IMLA
Lenders risk making any future property downturn worse by shying away from high LTV lending now, according to an industry report.

The Intermediary Mortgage Lenders Association (IMLA) said there was a ‘risk of a chicken and egg situation in mortgage lending’, in its latest report, Impact of coronavirus on UK housing and mortgage market.

“Lenders’ fears about the state of the economy in late 2020 and early 2021, with the risk of much higher unemployment and falling property prices, has led to restrictions on lending, with reduced maximum LTVs,” IMLA said in its report.

“These restrictions are quite understandable but they risk exacerbating any property downturn by limiting the number of first time buyers able to enter the market.”

The trade body said if the property market remained robust until early 2021, lenders could then begin to normalise their lending criteria.

IMLA added: “The return of higher LTV lending should occur once lenders have a sense of the scale of additional unemployment and house price falls following the end of the furlough and mortgage deferral schemes.”

In the latest Monetary Policy Report, the Bank of England said the number of furloughed workers would average as around two million in the third quarter of this year and one million in October. IMLA said this suggested a cliff edge in the labour market may not be as severe as first feared.

But usual lags in the availability of data mean it will be early 2021 before lenders have a clear picture of the direction of unemployment and house prices immediately after the government’s support packages ended next month.

IMLA said this could delay the point at which lenders start to relax their maximum LTVs into 2021, which in turn could hold back the recovery in mortgage lending . Nervousness around the impact of the stamp duty holiday in March 2021 could also delay banks’ decisions to adjust policies.

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