Adam Michaelson is a director at Charter HCP
So the BBC ran an article earlier this week with the headline CORONAVIRUS: MORTGAGE MARKET GOES INTO LOCKDOWN to describe the practice that many high street lenders are putting a temporary hold on its highest LTV products.
The clear and attempted inference is that the mortgage market is frozen and that somehow the banks are going to cause the freezing of the housing market and a plunge into the unknown.
It has become commonplace to bash banks and lenders at every opportunity (notwithstanding the fact that an institutional loan is the sole means by which the vast majority of individuals will every be able to own their own real estate) and so doubtless the story will meet with an unquestioning approval from the BBCs readership, but if one looks at this a little more closely, the story simply does not bear up:
1. What the story ACTUALLY says is that some of the high street banks are dropping their 95% and 90% LTV products, and that the current maximums are at 75% LTV. This is hardly a market in lockdown. Indeed the most surprising thing (as we touched on last week) is that banks continue to be under pressure to lend and will continue to do so.
2. The fact that, at present lenders are not willing to lend more than 75% isn’t surprising given that market values are so artificial in nature.
3. The ‘LTV’ element of the transaction is the interesting part. Valuers normally value on comparables but given the fact that there is so little movement in the market at the moment, this is almost impossible for them to do. As such, nominal mortgage values do not have any real means to calculate LTVs at this time.
4. Even this is irrelevant when one considers what is actually happening on the street. Estate Agents are closed and not conducting viewings, valuers are not able to go out and value and the government have issued clear advice to avoid moving homes at this time. As such, the notion that anyone would be out there actually looking for a mortgage to move house right now that didn’t already have a transaction in place is at best moot and at worst a straight bending of the truth.
5. Even during normal times, the number of people that are actually able (with a sound enough credit score good enough employment history and a suitable property) to get a mortgage offer at 95% without HTB is very small and as such is unlikely to affect the market as a whole right now very much.
This highlights the lack of specialist knowledge that most mass media business sections often have but gives rise to the sort of consumer behaviour that is very unhelpful and counterproductive in such a fragile and unusual economic climate. The real issue is what will happen when the restrictions are eased.
We are of the belief that there will be a tremendous spike in economic activity, based around 14 weeks worth of pent up demand, and also a huge desire for people to move house (looking at the same 4 walls for 14 weeks will surely have such an effect). As such, the issue isn’t what the banks are offering now, but rather the products they will be offering in 14 weeks time.
The housing and mortgage industry has the capacity to lead the country out of the darkness and be at the forefront of any feelgood factor that will happen this summer when the shackles finally do come off.
Stories like the BBCs one are inaccurate but have the potential to be hugely damaging to the industry and to the country at large, and as professionals, we owe it to ourselves and to our customers (ie owners and buyers) to correct this type of irresponsible journalism.
Fortunately, technology has never made it easier for us to do just that. Blog, tweet, get stuff on your website, mailshot your clients, talk to people (clients or not) explaining what the real situation is and what’s likely to happen after the restrictions are eased.
Do it calmly and with a cool eye, explaining things carefully. We all have our part to play, and if we do it successfully, our industry too can play its part in bringing the country back from the brink.