Guest Blog: Steven Williams
Steven Willams: Mortgage Adviser at JP Financial discusses the impact Covid-19 has had on the mortgage market.
This week we have asked Steven Williams of JP Financial to give us an insight into the state of the mortgage market since Covid-19. We have worked closely with Steven over the past few years to help our clients and their families with all things mortgage-related. If you are reviewing your own mortgage requirements, details for Steven and his firm are included at the end of this blog.
Impact of Covid -19 on the mortgage market
Covid-19 had a seismic impact on the mortgage market with thousands of products being withdrawn overnight and the customer service from lenders being hugely affected as staff were put onto the furlough scheme. This left buyers and sellers in an impossible situation as lenders simply withdrew their product lines amidst uncertainty in house prices. The furlough and redundancies also brought into question the viability of the loans for borrowers whose jobs were no longer secure.
In recent weeks, the situation has started to look a little more positive, buoyed by the chancellor’s announcement of Stamp Duty relief and the ease of lockdown, the market has started to recover. This blog gives a summary of the past few months in the mortgage market and how the landscape has changed for those looking to secure lending.
In March, in reaction to the Coronavirus pandemic and the start of lockdown, lenders withdrew over half of their products, bringing the UK property market to a standstill overnight.
Opting for self-preservation, most lenders decided to only offer deals on mortgages that were below 75% loan to value. The consensus was that house prices would fall leaving those with 75%+ of lending potentially facing the prospect of negative equity. With the likely slew of redundancies to follow, people could be left unable to meet their mortgage obligations and could default on their loans, like the housing market collapse in 2008.
With the chancellor’s announcement of the Coronavirus Business Interruption Loan Scheme (CBILS), requests for business loans increased to a record level. This diverted the banks’ reserve capital towards supporting UK businesses and away from mortgage lending. Added to this, an estimated 1.9 million people requested a mortgage holiday, and call centers around the world were forced to close. Banks simply could not process the number of mortgage applications required and opted to only accept the safer, lower loan to value products to handle the demand and liquidity issues.
We started to see the impact of the withdrawal of the high loan to value products. This had a huge impact on the market ecosystem. First-time buyers who had only amassed a small deposit now found themselves left out in the cold, and the knock-on effect would soon be felt across the rest of the buyer/seller chain. The prospect of buying a home with a 5% or 10% deposit, common practice a few months prior had all but disappeared completely. Lenders continued to fear the worst, a repeat of the 2008 credit crunch and collapse of the housing market, some even stopped all mortgage lending across their product range. The onset of business loans further depleted the cash reserves of the lenders, leaving less in the coffers to support homebuyers.
June saw business loan applications subside and property prices remain steady. The global stock market continued its recovery and we saw mortgage lenders start to come back to the market. Some were even offering 85% loan-to-value deals as standard with the capacity to process them effectively as their support staff start to return from furlough. Lenders, still sceptical about the higher LTV cases and remained cautious with their approach to lending, limiting the number of mortgages available at those levels.
July saw a small minority of lenders offering 90% LTV mortgages in an attempt to prop up the first-time buyers and ensure the beginning of the buyer chain has a viable option to get themselves onto the property ladder. These deals remained restricted as lenders continue to fill their monthly quotas in a matter of days. Some banks offered these products for a limited time, some stipulated additional conditions (such as a maximum term of 25 years) and one lender introduced a fund booking system to limit the number of mortgages that can be done each day. Naturally, this requires systems and processes to be working smoothly together, which is still a challenge as support services are yet to get back to full capacity.
August 2020 – Is it a good time to re-mortgage?
As we find ourselves 6 months on from the start of lockdown, with restrictions on lending continuing to ease, we are being asked if ‘now is a good time to re-mortgage?’. On one hand, with Bank of England base rate at the lowest in its 325-year history, it is natural to consider remortgaging your property or moving up the property ladder now to take advantage of the rates. This may only be possible if you have 15-25% equity in your property as lenders appetite for the higher LTV deals is still limited and restricted to a first come first served basis.
If you are planning to buy a new home, you will want to ensure you have a solid mortgage offer on the table before making any commitments to the purchase. You may find yourself left high and dry if you do not secure your loan first. It is always worth exploring your options if you are coming to the end of your initial deal, as many lenders are less restrictive if you are simply processing a product transfer as opposed to moving to a new lender.
Company directors and self-employed
It is now more complicated to obtain a mortgage as the director of a company or self-employed person, as each lender has its own strict criteria you must meet to obtain the loan. Some lenders have stipulated that they will not accept anyone who has taken a bounce back loan. Some want proof that you are trading at the same level as before the pandemic and some have simply decided to stop lending to any self-employed person without further guarantees.
How well your business has dealt with Covid 19 is now a major factor when lenders are considering when reviewing mortgage applications. They want to ensure your business is viable in the current economic environment and that you will be able to meet your monthly payments.
Future of the mortgage market?
The full impact of the Coronavirus pandemic will only likely be seen over the next few years. With large scale unemployment a very real risk, will we see a drop off in demand as people are unable to get onto the property market? Could people find themselves stuck in unaffordable deals unable to re-finance their homes?
On the other hand, demand propped up by the Stamp Duty relief from July 2020 to March 2021 we may see the demand continue to soar and the all-time low rates fuel the rising property market. One thing is for sure, uncertainty will remain if this pandemic continues. This will mean a more cautious lending approach and more restrictive and selective criteria set out by lenders.
In the immediate future, you should expect limited deals, fewer lenders than normal, and longer processing time as standard. This will likely be the case for at least the remainder of the year as lenders re-find their place in the market and their appetite to lend at the higher loan to value levels.
It’s more important than ever to be working with a professional adviser will help you navigate this unique lending landscape.
If you are considering reviewing your mortgage or a family member is looking to get onto the property market, we recommend you reach out to Steven at JP Financial and chat through your requirements in more detail. The team will provide you with insight and information about your options and offer a proactive, professional service. The feedback from our clients has always been extremely positive. Contact details are below: