With the impact of Coronavirus affecting almost every industry, mortgage applications are no exception. Mortgage providers are still working hard to help applicants, but naturally there will be some disruption.
This guidance document aims to provide some additional information on
the impact the current situation has on any existing mortgages, as well as
highlighting some key considerations if you are in the process of applying
for a mortgage.
The Bank of England base rate has dropped to the lowest in its history,
which means that mortgage interest rates will also reduce. If you have
a tracker rate mortgage, then the rate you are charged will also reduce
because the interest rate you are charged tracks the Bank of England base
rate. In this scenario, your mortgage provider will be writing to you in due
course, to confirm how this will affect your monthly mortgage payment.
Even if your mortgage is not deemed a ‘tracker’ mortgage, you may be
on a variable deal. Although variable deals do not specifically track a base
rate, variable deal interest rates are set by your mortgage provider, and
can fluctuate in line with market conditions.
If your mortgage is on a Standard Mortgage Rate (SMR) or Standard
Variable Rate (SVR) then it is likely that your lender may reduce your
interest rate moving forward and will write to you shortly to confirm
how this will affect your monthly mortgage payment.
In line with the UK Government announcements to assist mortgage
borrowers, mortgage providers are offering payment holidays in
an effort to assist those who have been financially impacted by the
Coronavirus outbreak. If you are facing financial difficulty and wish to
apply for a payment holiday, most mortgage providers have requested
borrowers contact them directly, as opposed to going via a broker.
The Financial Conduct Authority (FCA) wants to reassure that if you
request a payment holiday, there will be no impact on your credit
score and that companies should not be investigating the reason
for requesting the payment holiday. This guidance is specific to
mortgage borrowing, therefore if you are concerned about financial
difficulty linked to any other borrowing, e.g. credit cards or loans, it is
recommended that you contact your credit provider to discuss how
they can help you at this time. You can also contact the Money Advice
Service at www.moneyadviceservice.org.uk, which provides free and
impartial support to anyone concerned about financial difficulty.
The method to apply for a mortgage payment holiday varies
from lender to lender. Owing to the high volume of calls, it is
recommended that you check your mortgage provider’s website for
further instruction before telephoning. To avoid high telephone call
volumes, some mortgage providers have set up an online application
form for customers who wish to request a payment holiday.
If you are in financial difficulty, it is important you do not simply
cancel your monthly mortgage direct debit without contacting your
mortgage provider as this could have a detrimental impact on your
future credit history.
One thing that is key to bear in mind is to consider when your current
mortgage deal may end. If your mortgage deal is ending soon, it is
important to speak to your mortgage provider before requesting
a payment holiday as some mortgage lenders will not allow you to
review your deal whilst you are in a payment holiday period. This is
particularly important to consider, as once your deal ends it is likely
your interest rate will automatically revert to a Standard Mortgage
Rate (SMR) or Standard Variable Rate (SVR). These SMR and SVR
interest rates are likely to be higher, and if you are unable to review
your deal until the end of your payment holiday i.e. in 3 months, the
interest you will be charged will be a higher amount, and you may end
up paying more overall.
In addition to mortgage payment holidays, it is worth checking if
you hold Mortgage Payment Protection Insurance (MPPI). This is an
insurance policy which provides monetary support to pay your mortgage
if you are off work for a long period of time, as a result of illness, or in
some circumstances, through unemployment.
These types of policies will typically require you to be off work for at least
30 days before your claim can be submitted, but it’s worth checking to
confirm if you have cover and what your cover provides.
As mortgage interest rates have dropped, remortgaging your home to
a new provider could be a good opportunity to save money. It is worth
noting however that some mortgage providers are now limiting the
amount a customer can borrow and in some cases, not taking new
mortgage business at all in the current climate.
This does not mean you cannot still switch your mortgage deal with your
current lender to a more competitive interest rate. For borrowers who
are not currently locked into a deal, the option of a ‘product transfer’,
where you exit your current deal but remain with your existing provider
on a lower interest rate, could save you money. Please contact your
mortgage broker to discuss this further.
If you are thinking about buying or moving home, it is still possible to
obtain a mortgage, however timeframes may be significantly impacted.
The simple logistics of property viewings and valuations are severely
limited at present owing to social distancing obligations. Whilst this may
mean certain re-mortgages will still be possible, it could potentially have
a detrimental effect on purchases, as those involved in the process will
understandably want a property to be sufficiently valued, especially if
home improvements have been done.
Clarification from the Government about whether home purchases and
home moves should continue at the current time have said:
• Home buyers and renters should, as far as possible, delay moving to a
new house while emergency measures are in place to fight coronavirus.
• If moving is unavoidable for contractual reasons and the buyers and
vendors are unable to reach an agreement to delay, people must
follow advice on social distancing to minimise the spread of the virus.
• Anyone with symptoms, self-isolating or shielding from the virus,
should follow medical advice and not move house for the time being.
Some lenders are able to do desktop valuations on properties, as
opposed to physically going out to view them. If this is not possible, in
some instances larger estate agencies are offering video valuations to
mortgage providers to help avoid delay with mortgage applications.
This is not an option for all companies or all mortgage transaction
types. Some providers have postponed physical valuations until
further notice, however all other work pertaining to your mortgage
will be going on in the background to help avoid any further delay.
Once it is deemed safe for valuers to proceed with physical valuations
and visit the property, then your mortgage lender will be able to
assess and progress your application accordingly.
In line with UK Government guidance, it is likely all homebuyers
valuations will be suspended, with the situation assessed again at a
future date. Any booked surveys will be cancelled and then rescheduled
following the outcome of the latest Government advice at that point.
Some mortgage lenders are not currently accepting any new applications
at this time. This is to help ease any backlog of ongoing applications,
and simply to protect themselves and borrowers at this uncertain
time. However should your mortgage provider still be accepting new
applications, and subject to their satisfactory assessment of your income,
then applications for further borrowing may be possible.
Please be aware that should your lender require an up-to-date physical
valuation of your property, then the application may be subject to the
delays mentioned above, until such time valuers are able to gain access
to the property in line with UK Government advice.
At this moment there are no widespread limitations from mortgage
providers restricting the occupations of customers they will lend to.
There are a few instances of mortgage lenders who will currently not
consider mortgage applications from customers who work in travel,
retail, hospitality and entertainment. However this is an exception, and
not the generic stance across the board.
Once your mortgage lender has received your application they should
honour the deal. Even if that interest rate deal is now no longer
available, you will have reserved the product and the rate at the time
your application was submitted.
A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME OR PROPERTY. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP THE REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT.