In this new series of weekly articles, Greg Cunnington looks to clarify how the mortgage market has been impacted by the Covid-19 pandemic, and what this means for you. In this third part to the new series, Greg looks at some of the developments in the last week and also answers some more of your questions.
From the increasing numbers of borrowers arranging to take mortgage holiday to lenders offering reassurance to furloughed employees – there have been lots of new developments for homeowners to take on board this week.
Fortunately, helping our clients understand what is happening and what it means to them is key for everyone in the mortgage advice business at the moment. As such we are keeping on top of all the updates to help you navigate the best options for your individual circumstances at this difficult time.
Hopefully you found our first two articles useful – you can find links to these in the News section of the website. This week I have focused on some of the updates that have happened in the past week.
The latest on mortgage payment holidays
Most lenders now have systems in place to offer mortgage payment holidays. What’s more, we have seen the majority of lenders set up online application forms. However, there are still some lenders who have yet to complete this process so you will need to call directly.
Data from UK Finance has shown 1.2 million UK households – or one in nine mortgage holder – are now subject to a mortgage payment holiday. This can offer much needed breathing space to families whose household income is under severe pressure during the current crisis.
A word of warning…
One bit of advice we mentioned last week and I want to reiterate is that the government asked lenders to implement payment holidays for clients who have been financially impacted by Covid-19.
We want to ensure clients truly understand that by requesting a mortgage payment holiday, some lenders will take this as an implicit statement by the borrower that you are essentially saying you are in financial difficulty.
This could then affect your ability to acquire other mortgage options during this mortgage payment holiday period, both for a rate switch with the existing lender in some instances, or when looking to remortgage to a new lender.
With some lenders this is due to system issues, with old IT systems automatically blocking requests to rate switch when clients are on a payment holiday.
We are seeing some positive changes from lenders here, for example last week Halifax changed their systems to allow clients on mortgage payment holidays to now be able to apply for a rate switch still if their current mortgage product shortly ends, which was great to see.
An intermediary will be able to guide you through your individual options.
Indeed, this illustrates why it is so important that you receive advice before looking to request a mortgage payment holiday, and have ensured it is the best option for your circumstances.
There is some more information on mortgage payment holidays in this section of the website.
Mortgages for furloughed employees
One of the most common questions we are now receiving from clients is in relation to mortgage options for furloughed employees.
If you have been furloughed and are currently on the government Job Retention Scheme, you may understandably be worried about how this may affect your ability to get a mortgage, if you are in the process of purchasing a home or looking to remortgage currently.
This last week has seen most of the major lenders now confirm their positions for these clients. Most will continue to accept mortgage applications, for both purchases and remortgages, for clients who have been furloughed.
However, typically they will look to use 80% of the normal income for their affordability assessments of the new mortgage (to be in line with the income you will receive from the job retention scheme).
In a further positive move, some lenders have now confirmed that where the employer is topping up your income to 100% of your normal salary then this can all be taken into account for your mortgage application.
HSBC and Barclays got the ball rolling with this in the last couple of days. This is a very positive move from them, and we expect some other lenders to follow.
Evidence of this income will be required. An intermediary can help you with the specific documentation requirements lenders will require.
It should also be noted some lenders have taken a more defensive position. We have seen some lenders capping loan to values – the proportion of the property on which they are lending – for clients working on a furlough basis. This means you would need a larger deposit – potentially as much as a 40% deposit with some lenders – and there is a mixed bag of lender positions on this.
Things are changing all the time, however, as lenders adapt to the new realities created by the Covid-19 environment. So you should ensure you are working with an intermediary who can help you find the best option for your circumstances whilst offering expert advice in these challenging times.
Self-employed mortgages
We have also had a lot of enquires from self-employed clients, who are worried about their current mortgage options. The good news is that all major lenders remain open for self-employed applicants, meaning we can support you as always.
There have been a few developments in the past week which will affect self-employed borrowers.
Indeed, some lenders are now requesting the latest three months’ business bank statements for all new self-employed applications.
These will then be manually assessed by an underwriter, with the lenders wanting to see the income has not been negatively impacted if you are looking to use the latest available annual income figures to support the mortgage borrowing.
A good intermediary will be able to help guide you through these documentation requirements, and can also speak to the underwriters at the lender preapplication to get a good idea on if your scenario would fit their current criteria.
We have also seen some lenders, notably Barclays, now confirm that they will accept applications from self-employed clients that are eligible for and using the government support scheme.
Again, this is with 80% of the normal income figure being used for affordability purposes. We expect more lenders to clarify their positions on this shortly.
Your questions
During this difficult time, we are receiving a high number of questions from you about how the pandemic and the restrictions in place to slow its spread will impact your personal finances and mortgage.
We are hoping, as part of this series of articles, to answer as many of these questions as possible. Please send your questions via the ‘comments’ section in this article or you can contact us directly at [email protected] or speak to your adviser directly.
We received lots of questions this week so apologies we could not answer them all. But we will have more in next week’s article and I hope to answer as many as possible in future articles.
Client question
Consent-to-let
"Do you know if it is possible to take a mortgage holiday during a consent to let?"
My response
Yes –mortgage payment holidays apply to buy-to-let mortgages as well as residential mortgages, which should clear up the position for the lender on this.
As such, if you have difficulty in paying this mortgage because you are affected, either directly or indirectly, by Covid-19 then you should be able to apply for a mortgage payment holiday on your mortgage.
Client question
Will furlough impact our mortgage application?
"We have a deposit but I have recently changed my job so had to provide some payslips to show my earnings.
This month’s payslip will be the last one I need and the same with my partner. However he has been furloughed and is now getting 80%. Will this affect it and will we have to start gathering our three months’ worth of payslips when this goes back to normal or will they take what we already have?"
My response
This is a really good question, and exactly the scenario we have been getting lots of questions on from clients. The good news is yes there are other options here and solutions for you.
A lot of lenders have confirmed they can use furloughed income. The maximum borrowing will be based on this 80% income figure for your partner, however as long as this works then an application will be fine.
You will need to be careful on what lender to proceed with as some are capping loan to values for applications where an applicant is using furloughed income. However, a good intermediary will be able to navigate this for you and find the best solution. That is what we are here for!
This article was originally posted in What Mortgage online. You can see the original article here. Please note this will launch a new web page.
