UK lenders have ‘scrambled’ to make changes to their mortgage applications process and products due to the effect on the mortgage industry during this Covid-19 pandemic. The immediate effect has been a reduction in available mortgage products with transactions types being limited.
‘Day 1’ changes
Whilst the majority of larger lenders such as Halifax, Nationwide, Barclays, Santander and Natwest took steps to reduce the types of products available to their customers, a few specialist lenders went further by stopping new applications completely (Together Money). Whilst some lenders updated criteria to say halt lending to self employed applicants (Precise Mortgages).
These day 1 changes have eased a little and the mortgage market is somewhat moving again. Here are the main reasons why reactionary restrictions were imposed by the mortgage industry due to the effects covid-19.
Social Distancing & Lockdown
- Property Valuations – Due to social distancing and the lockdown, physical property valuations have generally been unable to take place. There is a possibility subject to the valuations firm, if social distancing can be achieved valuations still can take place, although none of large mortgage lenders valuations panel are operating in this way.
- Mortgage Processing – with the majority of large mortgage offices closed due to the lockdown, these teams are now working from home. At this scale – no lender has operated with this ‘home working’ set-up.
- Affordability – Mortgage Lending is based around ‘risk’. Lenders are more comfortable where a borrowers income can be identified and proven with ease. The effects of Covid-19 for the self employed and employed may mean many potential borrowers are now using the governments ‘furlough’ scheme. This has had a negative effect on the maximum affordability for a borrower. (read more about household income for the UK – source ONS)
- Interest Rates – The Bank of England has reduced interest rates to an all time low of 0.1% (march 2020). Some existing borrowers have benefited rom this – certainly those that have been on tracker rates. Generally the follow on rate (understand more about SVR’s and how to save money by switching) has also reduced for existing borrowers. For new borrowers unfortunately most banks have withdrawn tracker rates and the majority have generally ‘increased’ product rates due to uncertainly of the market.
- Economic Outlook – The economic outlook is uncertain with economists factoring in a significant reduction in growth for the UK. The immediate effect of this means we are currently entering a recession, the demand for new property purchases has decreased and of course inevitably property prices are likely to decrease.
What are the current restrictions on property transactions in the UK ?
New property purchases – these can continue albeit in a limited capacity
- Most lenders have restricting maximum lending to 60% LTV. (i.e. you will need to provide a 40% deposit)
- The valuation will need to be a ‘desk top’ or online valuation. (be cautious here, you will not have the peace of mind of say a structural survey)
- Fewer mortgage product choices are available compared to before the lockdown.
- You may not have access to a mortgage offer or of course be able to move until lockdown has been eased
- If you are really eager to complete a purchase during this time, talk to your solicitor first – many will not take transactions to exchange stage.
- You may not be able to borrow as much as you could before the lockdown due to affordability criteria.
- Generally these transactions can continue with the same valuation caveats as purchase transactions
- Higher Loan to Values are still available (some lenders are operating LTVs upto 75%-80%)
- Most lenders are only allowing ‘like for like’ remortgages, i.e. you cannot request additional borrowing as part of the remortgage
Product Transfers and Mortgage Switching
- Most lenders are operating these transactions as normal.
- Product switching is where you can select a better rate from your existing lender at the end of your mortgage deal – preventing paying a lenders SVR (Standard Variable Rate).
- Some lenders are not allowing product switches during payment holidays. It is probably best to switch your rate first and then request a payment holiday should you require one.
- Almost all lenders are offering a 3 months mortgage payment holiday.
- The 3 month payment holiday will generally mean your holiday payments will be ‘capitalised’ for the remaining term of your mortgage. This will mean after your payment holiday your mortgage payments will increase – the mortgage term will of course remain the same.
- Some lenders are allowing you temporarily to change your mortgage from repayment to an interest only mortgage for a limited time.
Help is available
Switchrates offer fee free mortgage advice – if you would like independent mortgage advice, please send us your enquiry.