Mortgage market’s ‘cliff edge’ could be exaggerated – IMLA

Concerns about a potential cliff edge scenario for the UK’s mortgage market on 31 October could be “exaggerated”, according to new research from the Intermediary Mortgage Lenders Association (IMLA).

The Association’s latest report, titled The Impact of Coronavirus on the UK Housing and Mortgage Market, suggested that the impact of closing the UK’s COVID-19 support schemes could be less severe than anticipated – with lenders expecting between 0.5% and 5% of borrowers coming off payment deferrals entering arrears.
According to the report, lenders are expecting a further 1.5% of borrowers on ‘payment holidays’ to be able to make interest only payments, meaning a large majority of borrowers are likely to successfully return to repaying their mortgage.

IMLA also highlighted projections from the Bank of England that show the number of furloughed workers is expected to fall to one million in October, far below the 9.4 million employees registered in June. The Association attributed the fall to the reopening of several sectors of the economy.

However, the report acknowledged that the true impact of the COVID-19 crisis will only be known once emergency support measures, including the Coronavirus Job Retention Scheme, are wound down over the coming months.

IMLA executive director, Kate Davies, commented: “There have been some major concerns that Britain’s economy and the mortgage market could face a cliff edge when the furlough and payment holiday schemes conclude at the end of October, but this latest report from IMLA suggests that the impact might be less severe than anticipated.

“The mortgage market has remained strong and resilient in the face of COVID-19, and figures suggest that most borrowers will return from payment deferrals with little or no difficulty. The Government’s latest measures to cut stamp duty is also likely to have sparked further demand in the housing market.”

IMLA’s report also suggested that if the property market is able to remain resilient beyond the closure of the support schemes and into early 2021, it could begin to see lenders normalising their criteria. This would involve a return of higher LTV mortgages, including 90% and 95% products, the Association stated.

However, IMLA also emphasised that the Government will need to avoid a sharp end to the stamp duty exemption, which is due to end in March 2021.

“The UK’s economic recovery from Coronavirus is still far from assured,” Davies added. “While the stamp duty exemption will provide a boost, the Government will need to be aware of the risk of another potential cliff edge for the housing market next March and they may even want to consider extending or phasing out the stamp duty holiday.

“Lenders are also well aware of the challenges facing consumers across the country, including first-time buyers, and they are eager to return to high LTV mortgages as soon as it is prudent to do so.”

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