Mortgage Advice During The Covid-19 Pandemic - Part 1
Greg Cunnington, Director of Lender Relationships and New Homes at Alexander Hall casts his expert eye over how the Covid-19 pandemic is impacting mortgages and what the latest developments mean for you.
A lot of you may be going through some financial strain and uncertainty at the moment. For most people the monthly mortgage commitment will be the largest single expense.
Therefore, it is important mortgage borrowers understand their options and are able to act on the areas which will benefit them.
During what is a challenging time, it is more important than ever that we in the mortgage industry are all working to ensure we support those around us. The well being of our staff and clients right now is paramount.
In order to give you the vital information you need I have provided some detail on the most asked about areas by our clients.
Mortgage Payment Holidays
Mortgage payment holidays have come into force as a result of a government proposal that borrowers who have been financially impacted by Covid-19 both directly and indirectly receive support.
People who qualify will be eligible for a three month mortgage payment holiday, for both residential and buy-to-let mortgages.
An important point to note is that a mortgage payment holiday is not an automatically granted option. If you wish to exercise the option you must speak to your lender first to request it. It is also worth checking there will be no impact on your credit file.
A payment holiday is a deferral of interest rather than an option not to have to pay your mortgage. Therefore in the first instance our advice would be that if you can afford to pay your mortgage without a payment holiday, then you should do so.
Also, whilst the government may extend the period, at present these payment holidays are capped at three months. People thinking of requesting a mortgage payment holiday should ensure this facility is available in the future when it is really needed, rather than making use of it too early when their financial position may be more stable.
Anybody considering a payment holiday should first speak to their mortgage intermediary, who will be able to discuss this option in more detail and to help signpost how to contact your lender.
There is some more information on mortgage payment holidays in our recent article which you can find here.
If you can’t get through to your lenders
Some clients are telling us they are struggling to get through to their lender to discuss a Mortgage Payment Holiday.
Some of the big banks were receiving over 20,000 calls a day last week, so this is no surprise. This should now be a little quieter, so I would advise trying again. Be prepared to be on hold for an hour or two unfortunately.
The good news is a lot of the larger lenders have set up, or are setting up, online application forms for clients to streamline this process. Nationwide, Santander, HSBC and Halifax have all set up online forms for clients in the last few days, and expect more to follow.
Extension of Mortgage Offers for homemovers
You may also have picked up the news that some lenders are extending the mortgage offers for home movers (and first-time buyers) by a further three months.
It is important to clarify this is for mortgage offers already issued and where the purchaser has already exchanged contracts on the purchase.
This allows the chain to delay completion whilst moving home is difficult, and after the government advice that moves should be delayed where possible.
This is a sensible move, and all lenders should be following this move to offer the three month extension and on the same mortgage rate as the original mortgage offer. The lender may ask for updated proof of income, and if so this will be subject to the lender’s discretion.
Mortgage Options – can I still apply for a mortgage?
Emphatically yes! One big difference between the challenges of 2020 and the economic turbulence of 2008’s credit crunch is that there is no issue with the liquidity for banks and building societies.
They have the means and the willingness to lend. However, what we are seeing are disparities with how each lender responds to the current situation. Some lenders have been impacted from a service perspective more than others due to staff shortages.
We are seeing these lenders have to withdraw some mortgage products, or to cap loan to values (the percentage of the property value they will lend as a mortgage against the property) to limit and manage the amount of business they attract, in order to give themselves breathing space.
For example, in recent days some major lenders have temporarily introduced a maximum loan to value of 60% whilst they manage service levels.
This same ability and willingness to lend applies to lenders offering buy-to-let mortgages too, which are still very much available.
Many landlords will be looking to remortgage with fixed rates coming to an end this year, and I want to reassure them that we have access to a wide array of mortgage options for them.
There are buy-to-let rates still available as low as 1.19% on a two-year fixed rate right now, so in fact it is a great time still for landlords to look into these options.
Physical valuations have also been put on hold during this period of self-isolation. This means that valuations are currently deferred for an initial period of around four weeks.
However, this does not mean you should hold off applying for your mortgage. By submitting the application you are locking in the mortgage rate offered with most lenders, which with current fluctuations is worthwhile to secure a low rate on your mortgage.
You can also get the majority of the paperwork and processing done, so that just the valuation will be required.
Also, some lenders will look to do a valuation on a desktop, or automated, basis, using data and knowledge of the location.
Where these are applicable, and on remortgages these are quite common, applications are processing to mortgage offer as normal. An intermediary can help guide you on which lenders offer these types of valuations.
Using an intermediary or broker
We are lucky in our industry that we can work remotely, and as such are here to help our clients at this time.
Intermediaries can access the various lenders on the market, and will be able to help navigate through these options at this time for you to find the best solution.
From an intermediary perspective it is currently business as normal in terms of helping our clients, albeit with meetings all by phone or video call currently!
As part of this series of articles we are hoping to answer as many of your questions as possible. We know this is a worrying time and many of you are anxious on the impact to your personal finances and mortgage.
I hope to answer as many as possible in future articles. Here is one question we received last week.
“We asked our lender for a three month mortgage holiday as we have lost a lot of money because of Coronavirus.
“However, to cover three months at £1,300, our lender will charge an extra £30 per month for the remainder of the mortgage, which is 16 years. So to borrow £3,900 we will need to pay back £5,760 – almost 50% interest.”
From what I have seen so far, lenders are doing their utmost to be part of the solution here and to assist clients where they can.
Payment holidays are a very good example of that. A lender should ensure that a client is treated fairly and transparently with a payment holiday.
They are all varying how the client pays this back – some are increasing the mortgage term by three months at the back end of the mortgage, some are agreeing a lump sum has to be paid by the client at a later date and some – as with this reader – are increasing the monthly payments to make up the additional interest and three months payments owed (I have seen all three suggested to clients by lenders).
The lender will confirm for you when setting this up what has been agreed, and so this is a good time to ask them any questions on this.
I would be very surprised if it transpired that anything other than the three months payments and accumulated interest were being charged. On this specific case I would speak once more directly to your lender and ask them to clarify exactly how they calculated this figure.
This article was originally posted in What Mortgage online. You can see the original article here. Please note this will launch a new web page.