Mortgage lenders and Covid-19 – whether it’s the 3-month payment holidays, how they deal with furloughed workers, bonus payments, the self-employed or how to get an offer extended, mortgage lenders and how they are dealing with the current environment is the main topic of discussion at the moment.
This was clear as I took part in another mortgage hour session with the wonderful Clive Bull on LBC Radio a couple of weeks back, answering callers’ questions that came in thick and fast. It seems that there is a real thirst for knowledge around mortgages and the property buying process like never before.
What really struck me is not just the fact that people obviously need and value professional advice, but how many people still wanted to get on with their transactions, whether that be selling, buying or remortgaging.
Whether they were still working or furloughed, their home move was still very high on their agenda which bodes well for the future as we are now seeing with the start of easing of the current restrictions.
In fact, looking at the latest stats, online property searches have gone through the roof showing just how much pent up demand is out there. Add into that the recent Stamp Duty holiday up to £500,000 and demand shows no signs of abating anytime soon, especially with mortgage rates so low.
Amidst all the craziness however, there seems to be some sense of a pattern emerging as mortgage lenders adjust to the current circumstances.
A couple of months back we saw mortgage lenders retreat and withdraw over half of the available products on the market, running to the sanctuary of 60% Loan-to-Value rates and below. Many specialist mortgage lenders withdrew from the market altogether as they tried to deal with the scale of calls coming in asking for 3-month payment holidays amidst a massively shrinking workforce as call-centres across the globe were forced to close.
There were some histrionic headlines at the time and a worry that we were about to experience another scenario similar to 2008, but these are very different times. The issues this time are very, very different – this is not about risk, bad banks, or greed – this is about capacity and people.
Thankfully, our banking institutions are strong, well run, and well capitalised. They want to lend but had to curtail things because they just don’t have the staff. The staff they had were trying to deal with literally thousands of calls a day from worried people asking about a three-month payment holiday.
Over the past few weeks, we have seen mortgage lenders come back into the markets, relying on mortgage brokers even more than usual. Most are now back up to 85% Loan-to-Value, (LTV) whilst others did go up to 90% LTV but introduced a fund booking system to limit the number of mortgages that can be done each day.
All mortgage lenders have been working hard to get to grips with the current situation and have done a cracking job in most cases. Last week was a particularly positive one with the likes of Halifax, Santander, Barclays and Nationwide increasing the number of products available once more.
They are all utilising automated valuations where they can which are helping the process no end and all mortgage lenders have continued to offer some competitive Product Transfer rates which brokers are able to arrange swiftly and easily for those borrowers coming to the end of their current product term.
I salute lenders for how they have started to deal with this so quickly. They have shown that, when they need to do something right like this, they do it.
The biggest area of difficulty at present is in 90% LTV lending, with a few lenders back in this market but being forced to either limit applications on a tranche basis, or pulling out again quickly due to the sheer volume of applications.
The reasons behind this are pretty clear and it is not down to valuation issues yet but is still all down to the question of capacity.
HSBC has been exceptional in the way they have continued to support the market throughout all of this, and it was fabulous to see Accord, Virgin Money, Clydesdale, Ipswich Building Society and others come back into this market.
It is also positive that demand is there that has caused some of the busiest days ever for these lenders in this market.
However, without more company in this market from other large lenders, it is proving difficult for these lenders to maintain these offerings, not only due to the sheer amount of applications but also to ensure a broad spread of business. As such several of these lenders have been forced to pull their 90% LTV rates again, leaving the space looking pretty sparce.
Until lenders can adequately deal with this amount of applications again it is going to be a case of making sure you speak to a broker who knows which lender is open at these higher ranges and have access to the booking systems.
We have also seen the return to lending of specialist lenders such as Precise and One Savings Bank which is a massive boon for everyone. Specialist lenders are an essential part of the mortgage market and need to be looked after to help those borrowers who are underserved by the mainstream players.
Other specialists have returned and are able to cater for those with credit issues, interesting properties, or need higher age limits.
The Building Society sector has been working particularly hard to look after their clients and with all this in mind, there are options available for most types of borrowers so don’t necessarily assume there is nothing available to you.
The key issue is still around valuations, as surveyors that were grounded and unable to do physical inspections are just coming back and working through the backlog. Again, mortgage lenders have been pretty good in upping their Automated Valuation Models, (AVM’s) and so we are seeing more applications start to move once more.
There is still gridlock in some parts of the process because of this, but every broker will know which mortgage lenders are able to move through the process and which ones will face a potential delay at valuation stage.
There is also the big question around values themselves and you can expect that valuers will err on the side of caution for a while.
What happens to house prices themselves remains to be seen, but I still cannot see a wholesale drop in prices across the board. The fundamentals of why people move remain strong and you can bet that having stared at the same 4 walls in lockdown for months, there will be a good many people keen for new surroundings.
Add in the general lack of new properties in the UK and any dip in prices, potentially around 5%-10%, is likely to be short-lived.
Lenders have also been working on their policies to deal with the new wave of furloughed workers. Most of them will be able to continue to lend, however, they will restrict the income they consider to 80% of your annual income up to the maximum of £2,500 per month.
Some lenders will also take into account any top-up on this that your employer is making, subject to proof from the employer.
The points to watch are around additional questions that lenders are asking. Some, like Barclays for instance, are sending out an additional questionnaire that confirms your circumstances have not changed since application. If you have been furloughed or your income changed then you do have a duty to disclose this to the lender, even after you have an offer. The lender can then choose to reassess the application and may change or withdraw the offer.
Others are just asking questions about whether or not you have been affected or likely to be affected by Covid-19 and for the Self-employed, applicants are now being asked to provide business bank statements and show that your business is likely to continue to trade at similar levels to the past.
Beware that some lenders who see in those business bank statements that you have furloughed staff or taken a “Bounce back loan” are declining applications.
Whilst I do understand lenders’ concern in this area and the need to do some extra due diligence, it seems unfair to assume that just because people are furloughed within a business or a bounce-back loan is applied for that the business is in long-term trouble. Many businesses, especially smaller ones, have taken advantage of these schemes to help them short-term and will come out of this leaner and more profitable in the long-term.
It seems to be against the spirit of the government assistance to then not be able to lend to the business owner as a matter of course, rather than looking at each case on its merits.
In short, it’s a lot less of an exact science and more a question of the underwriter’s discretion. It really pays in these circumstances to use the skills of a broker who knows each lender’s policy.
There are a lot of people now languishing in No-man’s-land waiting to see whether their purchase will go ahead and worried about their mortgage offer expiring.
The good news is that most lenders will be able to offer a three-month extension on your offer. Just give them a call or speak to your friendly broker and they can arrange this. Do bear in mind however that some lenders will ask you to confirm that your situation has not changed or that you have been furloughed as discussed above.
Buy to let products have also started to reappear, still at historically low rates, and it is interesting to see many landlords are tentatively coming out to play once more to see what opportunities are out there. Some with large portfolios are looking to take advantage of low rates and see if they can release some cash to take advantage of anything that comes their way.
With the Stamp Duty changes also being passed on to those purchasing a second or investment property, this is likely to spur landlords on to once more look at purchasing and expanding their portfolio.
Again the specialist lenders are great at this, so whether it is a big portfolio, HMO, or even a commercial proposition there are now some good options available.
One point to watch, however, is around the 3-month mortgage payment holidays. A few lenders are not allowing BTL purchases or remortgages to landlords who have taken a payment deferral either on one of their investment properties or their main residence. So, as we have mentioned before, only take the payment holiday if you do really need it.
At Coreco we have an experienced team that are used to dealing with landlords and large property portfolios, so it is worth getting in touch with us for a free review.
In summary, despite a blip a few weeks ago, mortgage lenders are dealing with this admirably. The market is still very much open, lenders still have money to lend and more importantly, they want to lend.
Whilst they do have some concern, understandably, about their borrower’s circumstances and ongoing affordability, for the most part, they are asking sensible questions and helping borrowers as much as they can.
With rates still very low and very unlikely to move North anytime soon, remortgage applications continue to be strong and it remains a great time to lock into a good rate.
As many of us continue to stare at the same 4 walls day in and day out, it will be interesting to see how sustainable the new rush of people deciding to move as we come out of this, choosing to move to a brand new area with more space as they now have more flexibility to work from home and do less commuting.
In terms of mortgage rates, for standard residential mortgages, borrowers can obtain 2-year fixes at 1.09%, (3.90% APRC) and 5-year fixes from 1.39%, (2.80% APRC) whilst variable tracker rates are around from 1.24%, (3.90% APRC).
Those looking at Buy-To-Let can now obtain products from 1.19%, (4.55% APRC) for 2-year fixed or 5-year fixes are available from 1.62% (3.77% APRC).
Our professional, friendly advisers are still available for you to get some down-to-earth advice, or even just to have a chat! Contact us now on 020 7220 5110 or click here.