UK mortgage approvals bounce-back: how property investors will be affected

The current Coronavirus pandemic took a toll on many aspects of life, and prospective home-buyers were hit with a lockdown that halted their purchases and, in some cases, decreased their chances of being accepted for a mortgage.

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As lenders reacted to the financial implications of COVID-19, many pulled mortgages catering for those - typically first-time buyers - looking to borrow 90% or more of a property’s value, and the number of mortgage approvals declined substantially.

However, data from the Bank of England (BoE) shows that mortgage approvals began to bounce-back in June, with lenders approving 40,010 loans, compared to a record-low of 9,273 in May. 

For potential homeowners, this - and the Chancellor of the Exchequer’s stamp duty holiday announcement - is encouraging, and it’s also good news for the UK’s economy, which relies heavily on the housing market. 

But what does it mean for property investors?


An increase in demand

Since the market reopened in May, housing demand has been staggeringly high.

Just one week after the reopening, Zoopla’s UK Cities House Price Index Report found that demand had jumped by 88%, and since the announcement of stamp duty cuts, Rightmove stated the number of people contacting estate agents about properties for sale set a new record. 

New-build enquiries are also at a record high, up 21% on the previous record set in June. This is particularly positive for property-backed IFISA investors, whose potential returns are generated through the development of high-quality, new-build homes.

Read more:Q&A with Jan Dale and Simon Walker: where is the housing market heading in 2020?

In turn, mortgage applications have increased, with first-time buyer applications up by 182%, and next-time buyer applications rising by 176%.

The evidenced demand is a strong indicator that property has been a relatively resilient sector throughout COVID-19 to-date, and now that the amount of mortgage approvals is steadily improving, property investors can be confident in the tentative but promising re-bound of the housing market.


The decline of buy-to-let

Potential buy-to-let investors may have felt the aftershocks of the initial market response to COVID-19, as more than 1,300 buy-to-let mortgage products were withdrawn, and average interest rates on many remaining products have risen. 

This blow comes as the current tax year also saw mortgage interest tax relief - which allowed buy-to-let landlords to deduct mortgage expenses from rental income, reducing tax bills - completely eliminated. 

Data from UK Finance found that there were 5,000 buy-to-let mortgages in arrears of 2.5% or more of the outstanding balance in the second quarter of 2020, an increase of 6% from the same quarter in 2019. 

The continued expense and hands-on nature of being a landlord - in contrast to investing into property via an IFISA - may have taken its toll on some buy-to-let investors throughout the Coronavirus pandemic. And though demand is still there, the lack of mortgage availability and dwindling tax reliefs could see the more traditional method of property investment decline further.


The importance of mixed-tenure

For many first-time buyers in particular, mortgages that require only a 5% deposit are crucial in allowing them to take their first steps towards becoming a homeowner. But in the wake of Coronavirus, mortgages of this type have almost completely disappeared from the market. 

To make matters worse, some banks have introduced tighter restrictions on how much a buyer’s family can help them with a deposit.

For this reason, many would-be first-time buyers may need to revert back to renting, or look for alternative methods of getting their foot onto the property ladder - such as rent-to-buy schemes. 

Like many larger house builders, the forward-thinking regional builders that typically benefit from the alternative finance provided by investments such as the property-backed IFISA are able to deliver mixed-tenure housing options such as these, which will be particularly paramount in the current climate. 

Homes by Carlton’s (CARLTON Bonds’ Strategic Housing Delivery Partner) Cathedral Gates development - for which Carlton Bonds provided a £300,000 short-term development finance loan - comprises 14 bespoke courtyard homes, situated in the transforming area of Chilton, County Durham. 

Cathedral Gates is also mixed-tenure, featuring both private sale and rent-to-buy plots, matching location and market-need.

Read more:download our latest lending project case study

This means that, wherever demand picks-up first, investors into a property-backed IFISA - such as the CARLTON Bonds IFISA - could receive the same benefits of high potential returns.


Investing into property 

As a property investor, you’ve likely been keeping a watchful eye on the sectors’ response to COVID-19. And while it has felt the negative effects - like most other sectors and industries - its slow moves towards recovery in the months following the easing of Coronavirus-related restrictions could be somewhat reassuring. 

Increased caution is still crucial, but the housing market’s evidenced demand, the bounce-back of mortgage approvals and the agility of regional house builders is promising for property-backed IFISA investors in particular.


Carlton Bonds Brochure

The CARLTON Bonds product is available exclusively to experienced investors who are classified as either sophisticated investors, high-net-worth individuals or professional investors and have the knowledge and experience to make their own investment decisions. Investments are high risk and illiquid, your capital is at risk and returns are not guaranteed. Bonds are not protected by the Financial Services Compensation Scheme (FSCS).