Coronavirus: What happens when the lenders stop lending?

_{Posted
27/03/2020 20:23}

The last couple of days have seen the mortgage providers either stop or severely restrict, lending. Here’s a quick guide to what you can and cannot do.

Things are changing FAST and this article could be out of date quickly - it is correct at the time of writing (27/3/20).

Have the lenders stopped lending?

Some of the smaller, lesser-known, lenders have pulled out of the market. However, most of the other lenders are still accepting mortgage applications, but criteria have tightened up considerably. Due to Coronavirus, surveyors are unable to go and value properties, which means the lenders will have to rely on ‘desk-top valuations’. These are computer-based indexed valuations that often come in lower than a physical valuation. The mortgage lenders are also struggling to work remotely, with most unable to effectively access the required systems, from home. There is also the issue of unknown house price and household income drops, due to Coronavirus. In short, it’s pretty uncertain out there and the lenders are nervous.

Here is a summary of the changes made so far:

What are the changes?

Tracker Rates have been withdrawn - most of the lenders have taken the decision to pull their tracker rates, as a result of the recent emergency Bank of England Base Rate cut, on March 19th 2020, to 0.1%.

No physical valuations - due to Coronavirus, surveyors are unable to visit properties to confirm their values. Lenders are therefore having to rely on desktop valuations.

Loan-to-Value (LTV) restrictions - your LTV is your mortgage amount divided by the value of your house and represents how much equity you have in your house. Up until this week, lenders would accept 95% LTV applications, however, this has now been lowered significantly. All the lenders have adopted different policies, with regards max. LTV’s, with some going as low as 60% (Halifax) and others being a little more generous, with 85% (HSBC).

Contacting your lender - the mortgage lenders are inundated with calls and as a result, getting through to them will be a lengthy process. Most of what you would need to know can be found on their websites - they all have a Coronavirus section.

3-month payment holiday

Life is already getting tough for many of us and it’s going to get worse before it gets better. Jobs are being lost and businesses are on shut-down. Luckily our government has stepped in with a range of financial packages aimed to help ease the burden, during these difficult times.

The one most relevant to the mortgage market is the ability to apply for a 3-month mortgage payment holiday. This allows mortgage holders to defer their monthly mortgage payments, by three months. With the mortgage payment being most households biggest expense, this is a real lifeline.

It’s important to remember that the 3 x deferred payments get added on to the balance of your mortgage and therefore your monthly payments will increase after the 3-month period - but not by as much as people are thinking.

Applying for your 3-month mortgage payment holiday is a doddle - you will need your mortgage account number, name & address and confirmation that your ability to pay the mortgage is being affected by Coronavirus.

What if your current fixed rate is coming to an end?