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Vulnerable borrowers and first-timers most at risk from Covid-hit mortgage market – FCA Insight

  • 18/11/2020
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Vulnerable borrowers and first-timers most at risk from Covid-hit mortgage market – FCA Insight
Vulnerable borrowers, first-time buyers and those with lower incomes and savings are most likely to be detrimentally affected by coronavirus-related impacts on the mortgage market.


The findings were detailed in an article from the Financial Conduct Authority (FCA) which highlighted a slow rebound may produce “further widening of intergenerational disparities”.

The research found clear access to the mortgage market had been reduced for first-time buyers and those with limited savings, and further effects of the pandemic could hit vulnerable people.

“Should this trend continue it risks widening the gap between established homeowners and those hoping to become property owners, between younger and older generations,” it said.

“Even in a scenario where the mortgage market remains fairly resilient overall, the market contours and structure may be shaped further by the pandemic, with potential consequences for vulnerable borrowers.”


High LTV borrowing contracts

Published on its Insight website, the paper was written by FCA head of research Karen Croxson and household finance technical specialist Philippe Bracke who analysed mortgage industry data through to the end of August.

They noted there had been a significant drop in high loan to value (LTV) lending and a notable increase in rates for this segment.

And while the market was beginning to recover there could be significant side effects of a fragmented or limited return to operations.

“One change may be more lasting,” they said.

“If the drop in availability of high LTV mortgages persists, along with increased rates for these products, this will impact lower income, lower wealth borrowers disproportionately.

“With these households more likely to be younger, this in turn may imply further widening of intergenerational disparities.”


Capital raising important for economy

In contrast, while remortgaging was largely stable the number of people taking out equity when doing so dropped dramatically.

If this trend continued that could also hit the national economy, they warned.

“As might be expected, the pace of remortgaging was interrupted by the onset of the lockdown, but has remained within the range of remortgaging activity seen over the previous five years,” they said.

“In comparison with the gyrations seen in home-buying this amounts to remarkable stability and suggests people were still able to switch provider – a positive indicator for competition in this market.

“Again though, those remortgaging are typically established homeowners with significant equity. So, we may be looking at another example of how recent events have been less damaging to the financial outlook and choices available to older generations, while restricting the choices of younger first-time buyers.”

They added: “If future data releases show that equity extraction bounces back, it will be a reassuring signal for the economy, given the role that housing wealth plays in consumer behaviour.”


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