In such unprecedented times, many of us are feeling the financial and emotional strain of ‘lockdown’. Given the uncertainty of when life will return to the ‘new normal’, you might have concerns about your mortgage or using the time to review your finances. We’ve put together a mortgage market Q & A, which we hope will be of some help.
Are banks lending at the moment?
Many banks/lenders are certainly keen to receive new mortgage applications and continue to issue mortgage offers. However, they are experiencing staffing issues and are under considerable pressure processing mortgage payment holidays, hence the process may take slightly longer than normal. You may have heard of mortgage lenders “withdrawing from the market”, but for most this was only very temporary as they reassessed their position, took the recent Bank of England base rate cuts into account, considered the impact to borrowers of some of the government business support initiatives for employees, and relaunched new products into the market.
Are valuations happening during the lockdown?
Many lenders are using something called a “Desktop Valuation” where they look at recent sales data and use algorithms to estimate the property value. Until now, these were used for very low-risk applications, typically with a large deposit (so a low loan-to-value ratio), but lenders are exploring ways to expand this capability in order to carry out more business whilst managing their risk. Where a lender’s internal policy requires a physical valuation (e.g. high loan-to-value, new build properties) some are issuing ‘agreements in principle’ until valuers can leave their own homes to carry out the valuations.
My initial mortgage rate will end in 2020. What options do I have now?
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. 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. You should not feel helpless and can certainly start working towards securing the right mortgage for your personal circumstances. You can start by speaking to your existing lender to ascertain which alternative products maybe available to you. You can also start to speak to and make a formal application to other lenders who may provide you with a formal mortgage offer or an ‘agreement in principle’.
How can I reduce my outgoings during this period?
Now is a good opportunity to spend some time reviewing your cash flow and setting yourself a monthly budget (if you haven’t already). Go through your last 3 months of bank statements and split your outgoings into committed expenditure (outgoings that will not stop; e.g. council tax, utility bills, mortgage payments, loan payments, credit cards, insurance etc.) and lifestyle expenditure. Look at what lifestyle habits you are able to cut back on slightly. E.g. if you are a foodie, it may be a case of spending less on takeaways/deliveries as we have more time to try home cooking; if you like to unwind with some wine, reduce consumption to a glass or two; if you enjoy retail therapy/Amazon, whilst we are in lockdown there is the tendency to spend more online, however unless it’s essential, set yourself a budget on this spending too. If after cutting back on lifestyle expenditure you still need to reduce outgoings, you can look at taking payment holidays on your mortgage and unsecured debt. You will need to speak to your lender to obtain approval before reducing/stopping your payments, however, be aware after your payment holiday/s your monthly repayments and outgoings may increase in the future.
Am I eligible to take a payment holiday for three months?
You are eligible if you are a homeowner (with a current mortgage not already in arrears), and are concerned about your ability to meet your monthly mortgage payments. Your lender should not ask for proof that you have been financially affected by COVID-19. If you are a landlord whose tenants have lost income because of the impact of COVID-19, you may also apply for a payment holiday. This is on the understanding that you are expected to pass on this relief to your tenants to ensure that they are supported during this time. Similar to residential mortgages, you must be up to date with your payments and not in arrears. You may be required to self-certify that your tenants’ income has been impacted and that they are having difficulty paying the rent due to COVID-19. If you are currently in mortgage payment arrears, you may be able to agree a mortgage payment holiday with your lender; however, each lender will have their own policy on this.
If I take a payment holiday, will it affect my ability to get a mortgage after COVID-19?
The government, through the Financial Conduct Authority (FCA) have issued guidance to lenders requesting that lenders should ensure that taking a mortgage payment holiday does not affect a borrower’s credit score. At this early stage, it is too difficult to ascertain what future policies lenders will introduce that may impact your ability to secure a mortgage.
Can I still get a mortgage if I’ve been furloughed?
Yes. However, lenders will assess affordability based on 80 per cent of basic income up to a maximum of £30,000 gross per year. This may reduce the amount you are able to borrow. Where top-up income is being paid by your employer, the affordability will be based on the level of income received. Documentary evidence will be required to validate both furlough and top-up income.
I’ve been made redundant but my employer says they will hire me back. Can I still get a mortgage?
Unfortunately, if at the time of applying you are redundant, you will be unable to get a mortgage. As soon as you restart employment and are able to provide appropriate documentary evidence, you may apply
The above information is our understanding of the position as at 8th 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, to refinance your existing mortgage, or would just like to discuss your personal position and current options, please contact the Kinnison team at:
t: +44 (0)20 3871 2823