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Coronavirus and mortgages FAQ


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Introduction

The mortgage market has been through a rollercoaster ride since coronavirus (COVID-19) appeared and has responded well to the challenges this has presented. Here we try to answer the common questions we've been receiving about coronavirus and mortgages. If you have any other questions or would like some free advice about your mortgage, then get in touch with us.

 

Can I still get a mortgage?

This will depend on your individual circumstances. Lending never stopped despite the lockdown measures, although restrictions on how much you could borrow were introduced. Now that valuers can enter homes again, we are seeing lenders bring back their higher LTV products. LTV is the amount you want to borrow compared to the value of the property. During lockdown, many lenders restricted new lending to an LTV of 60%. Recently products up to 90% LTV have started to appear again. Lenders have also adapted how they assess affordability as many people's incomes have been affected. We are happy to do a free assessment of your situation and help so please get in touch.

My current mortgage deal is coming to and end, can I still get a new one?

Lenders are still accepting remortgage applications. Whether you can get a new deal will depend on your individual circumstances such as any changes to your income and how much you need to borrow compared to the value of your property. If you can't remortgage to another lender then you can probably get a product transfer from your existing lender. Product transfers do not typically require a new affordability assessment or valuation to be carried out. We are happy to do a free assessment of your situation and help so please get in touch.

As base rate is 0.1% can I get a cheaper fixed rate?

Although the Bank of England base rate (BBR) is at an historic low, this doesn't automatcially mean that fixed rate products are that low as well. Lenders use a number of measures to determine what rates they offer. This will depend on their funding model, the rate they can borrow money themselves, the types of mortgages they already have on their books and their processing capacity for new applications. Fixed rates are going up and down quite often at the moment as lenders try to balance attracting new business and maintaining turnaroud times. Whether moving to a new product is right for you will depend on your individual circumstances. You may have penalties for paying off your current mortgage early which could be more than any benefit you would get from a cheaper rate. We are happy to do a free assessment of your situation and help so please get in touch.

How will furlough or the self-employed income support scheme affect me getting a mortgage?

When assessing a mortgage application lenders need to be sure that you can afford the repayments and that you will be able to continue making them until the debt is paid off. This means looking at your income and how likely that is to continue. If you are employed and have been placed on furlough, or are self-employed and have seen your income decline due to coronavirus then the lender will take this into consideration. Any application will be based on your current income level, so if you are on furlough that is likely to mean you can borrow less. The lender may want confirmation from your employer that they will continue employing you and return you to normal pay, and for the self-employed may request extra bank account information to see what current income you are receiving.

Are valuations taking place?

Yes. During lockdown, physical valuations (where the valuer goes inside a property) had to stop due to social distancing rules. Lenders adapted by increasing their use of automated and desktop valuations. An automated valuation uses computer data and modelling to determine a property value. A desktop valuation is where a person researches historic and current property prices to determine a property value, without needing to visit the property in question. As lockdown restrictions were relaxed from 13 May firms have started to carry out physical valuations again where they are needed. Lenders are continuing to use automated and desktop valuations whenever possible and only requesting a physical valuation where absolutely necessary. For any physical valuation, the valuer will undertake a risk assessment with the property owner and ensure that social distancing measures can be followed. If a physical valuation is required but not possible, lenders are putting the cases on hold for now.

What is a payment holiday and should I have one?

You should only consider a payment holiday if you are struggling to pay your mortgage. If you can continue to pay as normal then this is the best thing to do. A payment holiday is an agreed break from paying your normal mortgage amount each month. During the coronavirus epidemic, government and the lending industry reached an agreement to allow borrowers to apply for a payment holiday of up to three months. You have to apply to your lender for a payment holiday and the majority of lenders have put information on their website. If you can still afford part of your mortgage then you can agree to make reduced payments rather than no payments at all. The amounts you don't pay still have to be made in the future so a payment holiday does not reduce your overall mortgage debt. The lender will discuss the options available to you and a plan for how the missed payments are dealt with. You must agree a payment holiday with your lender, don't just stop paying.

Is there a deadline to apply for a payment holiday?

Yes, if you've not currently applied you can do so up until 31 October 2020.

Can I have more than three months for a payment holiday?

If your current payment holiday is coming to an end and you are still struggling you can apply for another three months. You should contact your lender to discuss your circumstances.

Will a payment holiday affect my credit score?

The Financial Conduct Authority (FCA) which regulates lenders has said a payment holiday needed due to coronavirus should not affect credit reports and scores1. The three credit reference agencies have agreed to apply an 'emergency credit freeze' which ensures your credit score is not affected during an agreed payment holiday. While you have an agreed payment holiday the missed or reduced payments will not appear as missed payments or arrears on your credit file.

Will my home be repossessed if I can't afford to pay my mortgage?

The FCA has said lenders should stop any possession proceedings until 31 October 20201. Some lenders are offering guarantees not to repossess your home for longer than this. This applies to any borrower, not just those affected by coronavirus. If you are having difficulty paying your mortgage for any reason then the best action is to contact your lender to discuss this. Lenders don't like repossessing homes and have teams that can discuss the options available to you during these difficult times.

Will a payment holiday affect my ability to borrow in the future?

Although a payment holiday will not show on your credit file as missed payments or arrears a lender will still be able to tell that you have had one. Your credit file records the outstanding balance each month so if you are not making payments the balance will not go down. Lenders typically review your bank account as part of an application and will see that no mortgage payments were made. When assessing a mortgage application lenders do not rely solely on your credit file and a payment holiday will be one of many factors taken into account when deciding whether to lend to you in the future. Every lender is allowed to set their own criteria for who they will lend to, subject to meeting the FCA rules on affordability. As such each lender may put a difference emphasis on whether a payment holiday affects their lending decision. Given the number of factors used and the variation between lenders, it is impossible to say exactly how a payment holiday may or may not affect any future mortgage application.

1 Mortgages and coronavirus: information for consumers, Financial Conduct Authority, https://www.fca.org.uk/consumers/mortgages-coronavirus-consumers