Mortgage lenders have made significant changes to the availability of their mortgage products, some lenders are even going as far as to stop any new mortgage lending.
This is not limited to the smaller banks and building societies but has been across the entire spectrum including major high street banks.
Why are they doing this?
There are a couple of major reasons why lenders are doing this. Coronavirus has hit the workforce hard, with restrictions on employees affecting the Banks and Building Societies in the same way as everyone else. Basically, the levels of business a lender has the ability to deal with is reduced. Their response has been to remove products, thus reducing the incoming business. This has left lots of people without any product options.
The second major point is that physical mortgage valuations have not been possible due to the government guidelines. Some lenders do carry out desktop or drive by valuations but not all.
What does this mean for existing borrowers?
If you’re on a variable rate or tracker product you may not see any change in your monthly payments or interest rate as this is happening so fast the lenders are being very slow to pass the reduced interest rates down the line, this may be due to the significant impact coronavirus has had on their workforce. Some lenders however have addressed this issue by committing to passing on the full reduction to those entitled to it. Other lenders are delaying any change to those product rates, this would suggest they believe the Bank of England see the base rate reduction as a short term measure.
What about new mortgages borrowers?
You could be forgiven for assuming that the reduction in base rate will have an immediate impact on the rates available to mortgage borrowers, but this has not been the case so far. Most lenders have not reduced their rates at all with many withdrawing higher loan to value product ranges entirely, it looks like the risk of higher loan to value mortgages is too much for most lenders at the moment.
Some of the more niche lenders such as Together Money and Vida Home loans are simply not able to obtain money to lend themselves at the moment. They use the wholesale and capital markets which themselves are closed currently. This means these types of lenders are only able to work on existing mortgage applications and are unable to accept new ones.
Is getting a mortgage possible?
Lenders who have made changes have also made it clear that they are expecting these to be temporary due to the coronavirus situation, and are hoping to return to normality when possible.
When money is available to lend and surveyors are able to physically value a property the lenders are likely to revert back to their pre lockdown criteria and product ranges.
What can I do in the meantime?
The main thing to remember is that lenders want to lend money, it’s what they do. The measures they are taking at the moment are in response to the current situation. It is still possible to submit applications and more lenders are opening up higher loan to value products each week.
The main thing you can do is prepare yourself for the mortgage process, get in touch with a broker who can start researching for you, discussing your options and get an understanding of your situation. Check your credit report and make sure you're in the best position possible when the dust settles.
Valuations is the big question. Lots of lenders have been innovating in the last few weeks to try and navigate this hurdle. AVMs & Desktop Valuations have been widely introduced to try and accurately value properties for mortgage purposes.
Furlough & Mortgages
With so many employees being put on furlough mortgage lenders have been updated their criteria and factor this into their affordability calculations. The fact that lenders are still considering applications from furloughed employees is good news, however most lenders are now using the furloughed pay amount at 80% of your normal salary, even if it is being topped up by your employer.
Mortgage Product Availability Drops
The amount of mortgage products available in April (although still in excess of 10,000) was significantly lower than the running average before. Products are beginning to become available again but this will take time to get back to the previous ‘normal’ levels.
What are AVM’s?
AVMs are Automated Valuation Models, computer programs designed to value properties. They use historic sales data in order to calculate an estimate for the value of the property in question. It is as a result of AVM’s that more lenders have been able to increase the loan to values available and indeed start to lend at all.
Lot’s of lenders are now offering up to 85% loan to value with a few offering 90%, this new technology is helping the mortgage market recover sooner.
What does this all really mean?
There are lots of positives to take from the way lenders are reacting to the changes in the world. The way the lenders have adapted, and how quickly, to the changing world has been excellent, many completely changing their processes to boot. It will undoubtedly contribute to a smoother process going forward, leading to both faster processing and potentially increased capacity.
It seems likely that lenders will be looking to reintroduce higher loan to value products when they feel ready. Hopefully this will be sooner rather than later and give clients more options.
Where are we now?
Physical valuations are now possible, subject to the owner and surveyor being satisfied it is safe to do so. This means that lots of lenders have been able to get surveyors back out to properties again.
As the lockdown continues, the availability of mortgages with smaller deposits of 5% & 10% have remained very low. There are in fact less than 20 products available at 5% in total, with most lenders still offering 85% as the highest loan to value.
The biggest impact of the continuing shortage of funding is on higher-risk borrowers, including first-time buyers. They are likely to continue to find it more difficult and expensive to get mortgages while current conditions persist.
What has this meant for new mortgage products?
More products are coming back to the market and becoming available again, we are nowhere near to the levels two - three months ago but availability is on the increase.
It is worth noting that although the loan to values are becoming more available, although still incredibly limited, lots of the lenders have tightened their criteria and background income multiples. This means that you may not be able to borrow the same amount as you could in pre lockdown times.
The surveyors valuing properties for the mortgage lenders are also in a bit of a sticky situation. As they usually use comparable properties that have sold recently in order to effectively appraise a property they are at a disadvantage as there really hasn’t been any property completions. In this situation it would not be unsurprising if the surveyors are cautious when valuing for the foreseeable future.