Corona Virus or COVID Update – Managing your mortgage, payment holidays and BOE Base rate changes
The Corona Virus has clearly caught governments, business and consumers off guard, so the situation is continuously changing but there is good news for most people.
Firstly, for those who are wanting to remortgage during the current lockdown, who want to consolidate commitments or whose current deal is due to come to an end soon mortgage lenders are still lending, and our advice service goes on as normal. We can work with you entirely over the phone and online.
We will follow this article shortly with a discussion of the Bank of England Base Rate reduction and how this affects borrowers looking at a new mortgage. But for those with existing mortgage offers there is further information below.
Due to the lockdown most lenders have ceased physical valuations temporarily, so lending will likely be based on an electronic valuation (i.e an estimate based on previous sale prices and local market trends, like estimates on sites like Zoopla).
This may mean you have difficulty if you have spent significant sums renovating a property and now want to consolidate commitments back into your mortgage.
Reports of lenders ceasing funding is based on a handful of very small specialist lenders who were new to the marketplace anyway ceasing new lending. Some larger lenders have limited their purchase lending loan to values etc but purchasing currently seems unlikely.
Managing mortgage payments, and difficulties in paying your mortgage
The most important thing for you as a consumer is that if you believe you will have difficulty in paying your mortgage, contact your lender as soon as possible to discuss with them the options they have for helping you manage payments.
On residential loans, i.e. properties occupied mainly by you or your family the lender is legally obliged to try and prevent you from going into arrears.
This means they must consider offering solutions such as a temporary switch to interest only if suitable or consider alternatives like increasing the term of the loan or offering a payment holiday.
You should engage with them early as going into arrears will incur costs that may be non-refundable, avoidable and any arrears recorded on credit reports are unlikely to be removed in future. And arrears will make very significant differences to costs and the options available when you remortgage.
Bear in mind that any solution proposed is likely to cost you more in the long term and so it is not a gift or freebie and so it may not make sense to use it if you have plenty of savings for the long term to carry a short term drop in income.
The situation is less clear for those with buy to let mortgages especially as many will be interest only and therefore payment holidays are really the only temporary solution available. It isn’t yet clear if the governments statement about payment holidays will apply to commercial lending.
You should still contact your lender early though and discuss what assistance they may be able to offer if you are facing difficulties or non-paying tenants. Lenders are unlikely to want to take punitive action against otherwise good borrowers for a problem that will be affecting them across their whole lending book and so are likely to be magnanimous.
Registers of Scotland Shutdown
We have been made aware of clients whose sales are pending within a few weeks who are experiencing difficulty due to the Government closing the Registers of Scotland (the Scottish Land Registry).
Discussions between the Law Society and the Scottish Government are ongoing, and an interim arrangement will likely be agreed in the next few days. Until this point Scottish sales will not be able to complete. But it seems likely that some solution to the current problem must be arranged.
Bank of England Base Rate Changes
If you are considering a new mortgage will be writing shortly to expand on how the changes to the Bank of England Base Rate affect choices on new mortgage products.
For those people who are about to complete on their mortgage soon they do a present a dilemma though.
Fixed rate mortgages are not directly linked to the BOE base rate, and so the reduction in BOE rate has not yet passed through to most fixed rate mortgages although one or two small reductions have popped up.
As lenders will be extremely hard hit by the lockdown, they might seek to increase their margin on lending and so these rate reductions might never be passed onto fixed rates fully.
This means for most borrowers either wait to see fixed rates come down (when they could even go up) or switch to some form of variable product such as tracker rates which have reduced significantly as they follow the BOE rate.
However, no one currently offers tracker or variable rate mortgages with any kind of cap or upper limit that I know of, and given that this is a time of unprecedented global turmoil and upheaval wild changes to interest rates are not outside of the realms of realistic possibility.