COVID update; can you remortgage or product transfer, during lockdown?

Covid-19 has had a massive impact on the mortgage marketplace, with some lenders withdrawing altogether and thousands of products withdrawn from sale. The outlook is not as gloomy as you may imagine if you need to remortgage.

If your current deal is about to end, ends later this year, or if you want to

 remortgage to consolidate commitments and reorganise your finances, what options are there, and what should you do?

If your mortgage deal is ending soon

Firstly, if your current deal ends imminently, whilst there has been a reduction in the number of lenders and products, many of those withdrawn are for house purchases or higher-risk lending.

Most lenders continue to offer product-transfer deals for existing customers; many still offer remortgage deals for new customers, and we can arrange these for you without any advice fees. So we can typically advise you on options from the whole of the market and your current lender simultaneously.

If your income has fallen, this might affect your ability to change lenders but would not prevent you from transferring deals with your existing lender.

If your mortgage deal is ending within the next 6-months

For anyone whose existing deal ends by late Autumn, now is an ideal time to think about remortgaging.

Several lenders’ remortgage deals are valid for six months, so you can apply well in advance, taking advantage of the low current rates and arranging everything ready to switch over as soon as the current mortgage deal expires.

There are several reasons why doing this now could be wise. Firstly, although lenders have not passed on the full rate reduction made by the Bank of England into new fixed-rate mortgage deals, there is a good chance that this never happens.

With vast financial losses in every industry, it is difficult to imagine lenders vying to cut into vital profit margins when rates are already at all-time lows.

Conversely, we could see a reduction in house prices or even lenders pulling out of the market entirely, creating a situation where you were better off applying today than in several months.

No one has a crystal ball to predict how the market will progress over the year, but the likelihood of rates getting significantly better than today seems dim.

Consolidating credit commitments into your mortgage

This is where the remortgage market has already shrunk significantly. So, if you want to trim down your outgoings and reduce your typical monthly commitments, it may be wise to act now rather than wait. 

Be aware, though, that consolidating credit commitments into a mortgage often presents poor value for money. And may be more expensive than alternative options, like balance-transfer deals or converting credit card debts into a personal loan.

It is also important to note that you often convert unsecured credit commitments into one secured against your home. That means you stand to lose your most precious asset if you default, where previously, there may have been no risk of this at all.

We can help you understand whether a debt-consolidation remortgage is the correct solution for you. 

Changing your mortgage term

You do not necessarily have to wait to remortgage to alter your mortgage term and, therefore, your monthly payments (for anyone on a repayment loan).

If this is something you want to look at, you can speak to your lender, and you may be able to do this midway through an existing deal, even if you have early repayment penalties.

Again, you can possibly change the term when you remortgage or product transfer, and if you want to reduce your outgoings in this way, get in touch to discuss your options.

If you are in financial difficulty

If you are experiencing difficulty making payments, your first port of call should be your existing lender to discuss options to prevent you from getting into arrears, including the government’s payment holiday scheme.

If there is a risk of you defaulting on obligations like a credit card, loan, hire purchase or other non-secured credit commitments, then consolidating these into your mortgage is a potential solution. 

But this increases the risk of losing your home by converting unsecured commitments into secured debt.

We can help you get an understanding of whether consolidating commitments is a solution that could be viable for you. 

But you should consider speaking to stepchange.org & the Citizens Advice Bureau about the implications of getting into arrears on either type of commitment and other options that may be available, such as an IVA.

• Finance & product news
• Guides and tips
• Mortgage Broker Q&A
• Regulation and legal

COVID update; managing your mortgage, payment holidays, and Bank of England Base rate changes

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.

• Buy to let & commercial
• Finance & product news
• Guides and tips
• Mortgage Broker Q&A
• Regulation and legal