Lenders have started offering ‘blink and you miss it’ mortgage deals that are only available for 24 hours.
Few industries have bounced back from the challenges of Covid-19 quite like the housing market.
From the moment viewings were allowed again, estate agents have reported rocketing demand, helped in no small part by the Stamp Duty holiday.
It’s led to asking prices hitting new highs once more, though the demand from buyers has not exactly been replicated by lenders who are taking a more cautious approach to their activity.
The numbers of products on offer has plunged, while your options are dramatically reduced if you happen to be hoping to buy with a deposit on the small side.
And it’s led to some slightly bizarre short-term mortgage offers.
The birth of the mortgage flash sale
A couple of weeks ago TSB announced that it was launching new five-year fixed rate mortgage products available up to 90% loan-to-value (LTV), aimed specifically at first-time buyers.
There was a catch though. The product was only available for 24 hours. As a result, borrowers and their brokers would have to race against the clock to get their applications in and try to secure the deal.
Perhaps understandably, the move provoked a fair bit of ire among brokers, who argued this was effectively making it a “lottery”, leaving borrowers unsure of whether they would be able to secure the loan and therefore the property.
But it’s not an isolated incident; Accord, a lender which only offers products through mortgage brokers, has now launched its own suite of products that will only be available for 24 hours, once again available at 90% LTV and aimed at first-time buyers.
Why are these flash sales happening?
So what’s the thinking behind these mortgage flash sales?
Here’s what Jeremy Duncombe, director of intermediary distribution at Accord, had to say when announcing Accord’s deals.
“Whilst we know a more sustained approach is the ideal, by offering these highly sought-after products for shorter periods, we are confident we can maintain service levels whilst supporting first-time buyers on a more regular basis.”
And that’s really the crux of the issue.
There is a strong demand for mortgages from buyers across the market, whether it’s those who are already well up the housing ladder, or those who are still dreaming of climbing that first rung.
But while there are plenty of options for those with more sizeable deposits, those first-timers who have only managed to put together a 10-15% deposit face a far more limited range of choices.
And because of that, the few lenders that are willing to lend to these borrowers end up getting swamped with cases, to the point that they don’t feel comfortable taking on more or that their service levels struggle to cope.
Many lenders have precious little appetite to even consider these borrowers, and those that do are worried they will get flooded with too much business to the point that they introduce somewhat arbitrary time limits for how long they will even offer the low deposit deals.
Feeling the rush
OK, let’s start with the positive. It’s good that some lenders are starting to feel sufficiently confident that they are at least offering these deals to borrowers, even if only on a severely time-limited basis.
If we are to have a healthy, functioning housing market then we will need first-time buyers to be able to get onto the ladder, even if they ‘only’ have a 10% deposit.
And hopefully over time we will see more lenders confident enough to consider these borrowers, and perhaps even offer deals for longer than a day.
But this is far from an ideal way to operate.
A mortgage is the biggest loan any of us will ever take on, and it requires proper consideration, not a mad rush to meet an arbitrary deadline.
By only offering these loans for such a limited period, it turns the whole process into a bun fight, where brokers are left desperately trying to get through to lenders as if they are trying to buy tickets to the Glastonbury Festival, rather than secure a home loan for a client.
Thankfully the fact that these deals tend to go through brokers reduces the chances of borrowers making an ill-considered decision that they will later regret. But it still sets an uneasy precedent.
We don’t have credit cards or personal loans distributed like this; surely it’s not appropriate for mortgages either?