During the next few weeks and months, many borrowers will find themselves coming to the end of their current ‘initial’ mortgage term. With the Bank of England (BoE) reducing interest rates down to a historic low of 0.1%, is this the right time to secure a new mortgage? COVID-19 has had a significant impact on the mortgage market. Banks have had to react quickly in a rapidly changing environment and many have been forced to make changes to their product platform and processes.
What should borrowers do during COVID-19 ‘lockdown’?
At the end of the ‘initial’ mortgage term the interest charged on a borrower’s mortgage should revert to the lender’s Standard Variable Rate (SVR). SVR is the interest rate that a lender chooses to apply to mortgages, typically when a customer’s fixed rate or tracker rate ends. Each lender will set their own SVR. Quite often the SVR will be higher than the rate of interest during the initial mortgage term and hence monthly payments are likely to be larger than during the initial mortgage period.
Typically, at the end of the initial mortgage term the borrower should not have any ‘early repayment charges’ (ERCs).
The current lockdown should give borrowers a good opportunity to review their existing mortgage terms to ascertain when their initial mortgage period comes to an end. If a borrower’s initial mortgage term is due to come to an end within the next 6 months, this may be a good opportunity to start looking at their refinance options.
What can borrowers do?
Whilst the current COVID-19 outbreak has raised some challenges, many lenders recognise that borrowers need financial security and some have adapted their normal processes accordingly by doing one or more of the following:
- Extending existing mortgage offers by up to an additional 3 months giving borrowers greater time flexibility;
- For new borrowers or high loan to value (LTV) cases, progressing the mortgage to the stage of issuing an agreement in principle (AIP) subject to physical valuation of the property thereby giving borrowers the assurance that the lender is comfortable to lend to them;
- Working with surveyors to understand how modern technology can assist with the valuation process eg Automated Valuation Models for applications up to 80% LTV.
Borrowers should not feel helpless and can certainly start working towards securing the right mortgage for their personal circumstances.
Some key points
- Many mortgage conditions permit borrowers to refinance up to 6 months in advance of their initial mortgage term ending thereby allowing borrowers to take advantage of the recent BoE rate changes;
- Over the past 5 years there have been significant changes in mortgage regulation resulting in a tightening on how banks are required to assess mortgage affordability;
- If a borrowers’ circumstances have changed since they previously applied for their mortgage then this could affect their ability to refinance their current mortgage;
- During the current COVID-19 outbreak lenders are redirecting their resources to helping existing customers, particularly those enquiring about ‘mortgage payment holidays’;
- Given the current government enforced restrictions on the movement of people, surveyors are unable to physically view/value properties for mortgage purposes.
How Kinnison can support borrowers
We understand that during this uncertain time borrowers will be worried about their financial position and potentially their ability to refinance their home mortgage.
The current environment is forcing lenders to constantly change their mortgage product offering. We are a mortgage adviser with whole-of-market access and are highly experienced to assist borrowers to navigate through the mortgage application process. We can help them understand:
- the current market conditions;
- mortgage options available, i.e. product transfer or move to another lender
and guide borrowers through the mortgage refinance process.
The above information is our understanding of the position as at 1st April 2020. Both the government and lenders are introducing changes on a regular basis.
Get in touch
We hope you’ve found this Q & A of some help. If you are currently looking for a residential mortgage or to refinance your existing mortgage and would like to discuss your personal position, please contact the Kinnison team at:
t: +44 (0)20 3871 2823