The coronavirus has caught governments, businesses and consumers off guard, so the situation is continuously changing, but there is good news for most people.
Firstly, for those who want to remortgage during the current lockdown, to consolidate commitments, or whose current deal is due to 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 rely on an electronic valuation (i.e. an estimate based on previous sale prices and local market trends, like estimates on sites like Zoopla).
That may mean you have difficulty if you have spent significant sums renovating a property and want to consolidate commitments into your mortgage.
Reports of lenders closing funding are based on a handful of small specialist lenders (new to the marketplace anyway) ceasing to offer new lending. Some larger lenders have limited their purchase lending loan-to-value limits, 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 paying your mortgage, you should contact your lender as soon as possible. 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.
That means they must consider offering solutions such as a temporary switch to interest only, if suitable, or consider alternatives like increasing the term or taking 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.
Arrears will also worsen future costs and the options available when you remortgage.
Bear in mind that any proposed solution will likely cost you more in the long term. So, it’s not a gift or freebie, and it may not make sense if you have plenty of savings 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 the only temporary solution available. It is unclear if the government’s statement about payment holidays will apply to commercial lending.
You should still contact your lender early to discuss what assistance they may 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 affect them across their whole lending book, so they are likely to be magnanimous.
Registers of Scotland Shutdown
We have become aware of clients whose sales are pending soon and 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 it seems likely that a solution is imminent. Until this point, Scottish sales will not be able to complete.
Bank of England Base Rate Changes
If you are considering a new mortgage, I will write 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 their mortgage soon, they present a dilemma.
Fixed-rate mortgages are unlinked to the BOE base rate, so the reduction in this has not yet passed through to most fixed-rate mortgages, although one or two drops have popped up.
As lenders will be extremely hard hit by the lockdown, they might seek to increase their margin on lending, so these rate reductions might never be passed onto fixed rates fully.
That means most borrowers can 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 as they follow the BOE rate.
However, no one currently offers tracker or variable-rate mortgages with any cap or upper limit that I know of, and given that this is a time of unprecedented global turmoil, wild changes to interest rates are not outside of the realms of realistic possibility.