Everything first-time buyers need to know about purchasing property during a pandemic

At the end of March and during April, many mortgage providers began withdrawing their high loan-to-value mortgage deals (Photo: Shutterstock)

by Derin Clark

For many would-be homeowners, getting onto the housing ladder is tough during normal circumstances, but with the financial fallout from the coronavirus pandemic continuing to be felt, those looking to buy their first home are facing an even more challenging mortgage market.

In fact, research carried out by Moneyfacts.co.uk, shows that on the 29 July 2020, there were just 1,363 mortgage deals available to first-time buyers, which is down from the 2,681 that were available on the 1 March 2020, before the UK began to feel the financial effects of the pandemic.

Why are there fewer mortgage deals?

At the end of March and during April, many mortgage providers began withdrawing their high loan-to-value (LTV) mortgage deals, particularly hitting the 90% and 95% LTV mortgage market. This meant that the numbers of mortgage deals for those with a 10% or 5% deposit were significantly cut.

This not only impacted the choice available to first-time buyers, but also meant that it was harder for first-time buyers to get a competitive mortgage rate compared to the beginning of 2020.

During July, mortgage providers did start reintroducing their 90% LTV mortgage deals into the charts. For example, on Monday 20 July 2020, Nationwide (one of the largest mortgage lenders in the UK) extended its mortgage product range to once again include 90% LTV deals.

Despite some influential mortgage providers re-entering the high LTV market, the number of deals available to first-time buyers remain significantly lower compared to the number available before the coronavirus pandemic.

Where to look for a good deal

But there is some hope for first-time buyers looking to get a low rate on a mortgage deal. For example, on the 29 July 2020, first-time buyers looking to lock into a two year fixed deal with a 10% deposit (90% LTV) would find the lowest rate on offer was 2.24% fixed until 30 September 2022.

Alternatively, first-time buyers looking to lock into a five year deal at a 90% LTV could get the lowest rate of 2.56%. However, first-time buyers could potentially start seeing rates increase as lenders remain cautious about lending to what they consider riskier house-buyers than those looking to purchase at a lower LTV. You can find the current lowest first-time buyer rates by visiting the first-time buyer chart at Moneyfacts.co.uk.

Falling house prices

Despite the number of deals falling, during the lockdown months there was some good news for first-time buyers. According to data released by Nationwide House Price Index, during June, house price growth turned negative for the first time since 2012 and house prices fell by 1.4% month-on-month.

But the fall in house prices will potentially be short-lived as the Government’s increase of the stamp duty threshold to £500,000 will likely help boost the property market and house prices are expected to make a comeback over the next 12 months as a result.

All this makes it a very uncertain time for first-time buyers considering whether to buy their first home or wait until the market becomes more settled.

Should I buy property during the pandemic?

Those considering buying their first home should ideally speak to an independent financial adviser or, alternatively, a qualified independent mortgage broker, who will be able to provide them with the best option for their individual circumstances.

Those, for example, who have managed to increase their house deposit savings during the lockdown and are now able to purchase their home with a 15% deposit (85% LTV), may be in a better position to get onto the housing ladder than those who only have a 5% deposit.

Another option available to first-time buyers who are keen to get onto the housing ladder but who are struggling to save for a deposit is a guarantor mortgage.

With a guarantor mortgage, some lenders will allow borrowers to purchase a home without a deposit (at a 100% LTV) and, in return these mortgages require a third party, usually a close relative, to become liable for making mortgage repayments if the borrower defaults. A number of well-known high street banks offer guarantor mortgages and you can find all the deals available on the Moneyfacts.co.uk guarantor mortgage chart.

To see all the first-time buyer mortgage deals currently available, visit the first-time buyer chart on Moneyfacts.co.uk