Kate Davies is executive director of Intermediary Mortgage Lenders Association (IMLA).
Covid-19 has caused the most severe shock to the economy in the post-war period. A nationwide lockdown saw an unparalleled shutdown of society and our economy. Yet, the full effects of this crisis are still not fully understood.
Government action that just nine months ago would have been unthinkable has implemented emergency support mechanisms from furlough through to payment deferrals that have seemingly put the real impact of the crisis ‘on ice’.
Industry reacts to Winter Economy Plan
It is only when these measures are unwound, however, that the true effect of Covid-19 on the economy will become clear. In a bid to better understand the potential impact of these changes, IMLA recently released a new report looking into how the Covid-19 crisis has affected the UK mortgage market to date and what the future could hold.
Unexpected boom
The mortgage market, just like other sectors, had to react quickly to the implications of a nationwide lockdown. Lenders, advisers, surveyors and conveyancers – we all had to fit our businesses into the new model of remote working.
But in spite of the dramatic changes we had to make, and concerns that the pandemic had led to a collapse in confidence amongst homebuyers, the mortgage market has defied expectations and bounced back.
In the months since the housing market reopened, we have seen unprecedented levels of demand from consumers eager to press ahead. Arguably it is a boom that nobody expected when we emerged from lockdown, and it has put the housing market in a position to be a driving force behind the UK’s economic recovery.
Flashpoints
Inevitably though, there is concern about the future outlook for the market and much attention has been focused on potential ‘cliff-edge’ scenarios facing us in the months ahead.
Government support measures from furlough to the Self-employed Income Support Scheme may have helped to prevent an economic collapse, but these measures were only meant as a temporary solution.
Intervention in the form of payment deferrals has also changed the normal workings of the mortgage market by requiring lenders to offer these to borrowers, holding back a potential rise in arrears.
Inevitably, mortgage lenders are concerned about the outlook once these schemes come to a close on 31 October and as a result, they are taking a closer look at how borrowers have been and could remain affected.
Yet, IMLA’s latest report now suggests that this cliff-edge might be less severe than anticipated. While millions of borrowers applied for so-called payment “holidays” earlier this year, a survey of our members found that lenders only expect between 0.5% and 5% of borrowers to fall into arrears when the payment deferral period comes to an end.
It is the same story for furlough too. While an estimated 9.4 million employees had been put on furlough by June 2020, projections from the Bank of England show that this number is now set to fall to just one million before the scheme ends.
Meanwhile, concerns about a cliff-edge have also prompted a change in government policy that will likely soften the impact.
Last month, chancellor Rishi Sunak announced his Winter Economic Plan. This included a new Job Support Scheme with the aim of protecting vulnerable jobs, and this will ultimately taper the end of furlough.
Not out of the woods yet
However, while an October cliff edge now seems less likely, there are still significant hurdles to overcome in the recovery against the Covid-19 pandemic.
Unprecedented demand in the mortgage market continues to be a challenge for lenders, impacting service levels and forcing some providers to withdraw products.
Lenders are doing all they can to address these issues, but each business is being affected in different ways and there is no one-size-fits-all solution.
At IMLA, we are working together with our members and other organisations including AMI, to identify the particular issues facing the market. We therefore hope to use insight from our members to draw up possible solutions to the issues affecting operational capacity.
The government’s recent Stamp Duty holiday has certainly sparked further demand in the housing market too. But while this exemption is providing a boost to the market, the scheme is set to draw to a close on 31 March 2021.
That is the same date when the current phase of Help to Buy will end. More importantly though, such a sharp end to the Stamp Duty cut could also risk another potential cliff-edge next year, as consumers rush to complete on their housing purchases ahead of the deadline.
It will be vital for the government to avoid such a scenario and the chancellor may even want to consider extending or phasing out the Stamp Duty holiday.
Regardless, these challenges pale against the prospect of a second wave of Covid-19, which is clearly looming. With the experience of one national lockdown under our belts, we are almost certainly better prepared than before, but the prospect of a further lockdown and the evident flashpoints that lie ahead mean that the timing and manner UK’s economic recovery from Covid-19 remain uncertain.