Q&A: How coronavirus could affect your mortgage
PUBLISHED: 19:00 28 June 2020 | UPDATED: 10:01 03 July 2020
Covid-19 has had an impact on all aspects of life, from work to play and it will effect loans and mortgages for many years to come as the nation’s economy battles through the oncoming recession.
Business reporter Angus Williams spoke to Joanne Leek, the digital and campaign manager at Ipswich Building Society, to find out more about the impact of coronavirus on the housing market.
Q: To start off, has coronavirus made it more difficult to get a mortgage?
Now the lockdown is easing the mortgage market is returning to some sort of normality, albeit those with a smaller deposit or small amount of equity in their home may find themselves with limited options when it comes to purchasing or remortgaging.
One consequence of the pandemic is the large number of people who have found themselves experiencing financial difficulties or been made redundant. Whilst the requirement for borrowers to prove both affordability and a stable income has not changed, a growing number of people will find their new circumstances will significantly impact their chances of arranging a new mortgage.
Q: It has been reported that a lot of lenders have changed their minimum deposit from 5% to 10%. Why is this?
One of the biggest impacts on mortgage lending during the pandemic was the ability for valuers to visit properties. The independent valuation report gives mortgage lenders the assurance that the purchase price, and value, is fair and accurate for the property and that it will provide adequate security for the loan.
During the initial lockdown stages many lenders withdrew purchase products entirely, being unable to satisfactorily gain the assurances needed.
Now that valuers are able to attend properties using social distancing and PPE, the market has picked up albeit offering lower Loan To Values (LTVs) than previously. It is now common for borrowers to require a minimum 10% deposit or equity, while pre-coronavirus as little as 5% was fairly normal.
The requirement for homeowners to have an increased deposit or larger amount of equity in their property is part of the risk management process employed by lenders, who must ensure the mortgage funds outlaid can be repaid, and is fuelled by uncertainty around the property market - recently, Nationwide’s House Price Index for May showed annual house price growth had slowed to 1.8%, with prices down 1.7% month-on-month.
Q: It has been reported that more than one in four UK workers were furloughed. How would this affect getting a mortgage?
Many banks and building societies will consider applicants who have been furloughed, typically considering up to 80% of salary and a maximum of £2,500 per month when assessing affordability. Applicants should ensure they have evidence of entitlement along with at least three months’ payslips when applying for a mortgage, and will usually be required to have a minimum of six months’ service with their employer.
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Q: Are people eligible for a mortgage holiday because of coronavirus?
In March the government announced the mortgage payment holiday initiative, which has subsequently been termed mortgage payment deferral. Borrowers who have been affected by the coronavirus pandemic and are seeking a deferral should contact their lender directly to discuss the options available to them.
It is important that borrowers understand this deferral will still result in accumulation of monthly interest due on the outstanding balance owed and that, at the end of the deferral period, lenders will discuss the options available for repayment.
The deadline for applying for a deferral has been extended to October 31, with an initial three-month period available. After this period anyone still experiencing payment difficulties may be able to extend for a further three months.
Applicants should always speak to their lender in the first instance if they will have any difficulties in paying their mortgage, and not cancel their direct debit as this will be considered a missed payment.
Q: Do you have any tips for people trying get a mortgage at the moment?
Our guidance to anyone looking for a mortgage to purchase a new property, or to remortgage to a new lender, remains the same as it was before coronavirus.
Firstly, take time to ensure your finances are in order and there are no missed payments on any credit agreements - this includes credit cards, mobile phone contracts, insurance instalments and so on.
Secondly, you may wish to consider utilising an independent mortgage broker. These are experts in what is on offer, and will have thorough and up-to-date knowledge about which lender may be best suited for your individual circumstances.
Additionally, would-be property buyers should try to stick to the good financial habits enforced by lockdown and not be tempted to overspend on takeaways and costly shopping trips, and review whether they can now live without that expensive gym membership. They’d do well to keep saving in order to build up a healthy deposit - typically, the bigger the deposit, the better mortgage rate they’ll be able to access.
Q: Finally, have you noticed any other effects that the pandemic has had on mortgages and the housing market?
We expect to see the property market change as people reevaluate what is essential to have in their home. There has been a culture shift to working from home, which may see less reliance on commutable locations, and the impact of lockdown for those unable to access a garden or outside space may see an uplift in property purchases which include courtyards or lawns.
We are also starting to have more early enquiries around self build projects, as people look to more independent means of acquiring their dream property. This includes brand new builds but also more creative projects for large scale renovations, conversions or even the knock down and rebuild of existing dwellings.
For more tips from Ipswich Building Society, see their blog.
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