Mortgage market update: how can first-time buyers get mortgages in 2021?

The past year has seen several changes in the mortgage market, particularly for first-time buyers. The disappearance and reappearance of 95% LTV mortgages (mortgages that need 5% deposits), the stamp duty holiday and the rise of house prices are just a few things that have made the market turbulent. Things have slowly become closer to ‘normal’ again in the last six months, but not completely. Here is our mortgage market update for 2021.

High demand for houses

Over the past six months, mortgage activity has been record-breaking. One of the reasons for this is how people’s needs have changed. The lockdowns in 2020 and 2021 meant people were spending more time in their homes, using the same space for work, home-schooling and day-to-day life. As a result, there has been a high demand for properties with more space, particularly outdoor space.

The stamp duty holiday is another reason for the surging activity. The initial stamp duty holiday is set to end on June 30th and will then be reduced and tailored off until September 30th when all incentives will end. The surge in people looking to complete before 30th June has led to delays with mortgage lenders, surveyors, and solicitors. Although first-time buyers might be affected by the industry delays, in most cases first-time buyers will not have to pay stamp duty regardless.

Rising house prices

The increased demand for houses has caused prices to soar. In fact, they have reached their highest for several years. Although this is good news because it signals the mortgage market is strong, it does prove a challenge for first-time buyers: higher house prices mean you need to save a bigger deposit from getting on the ladder.

5% deposits

In the past few months, more banks have started to re-offer 95% LTV mortgages, which only need a 5% deposit. This is partially due to the government’s mortgage guarantee scheme, which launched in April 2021. The scheme encourages lenders to offer 95% LTV mortgages, with the government covering part of the risk of these loans. The government hopes this will make it easier for first-time buyers to get onto the housing market by reducing how big a deposit they need to save.

Restrictions on lending

Despite the return of 95% LTV mortgages, there are still barriers to getting mortgages in 2021. For example, many lenders are offering a maximum 4.5 income multiple, which means they will lend someone 4.5 times the household income. Unfortunately, this can be an issue in areas where 4.5 times the average household income does not make 95% of an average house price, because this leaves buyers needing to pay more than a 5% deposit to purchase a property at a high enough value. There are also quite strict requirements for the self-employed or contractors to prove their income, which can make getting a mortgage challenging.

Low-interest rates

Despite the challenges, there are still many positives. For example, interest rates for mortgages are historically low, which means you won’t have to pay as much interest throughout your loan. This is due to the Bank of England’s very low base rate of 0.1%. Although, as usual, there are higher interest rates for 95% LTV mortgages compared to 60% LTV mortgages.

That’s our mortgage market update in a nutshell. If you’re interested in buying a property and would like to know more about your options, speak to our expert team today and we can help you navigate the 2021 mortgage market.

Laura Lamb