Mortgages and coronavirus: sorting the facts from the fiction
From payment holidays to the housing market’s future prospects, we address the most frequently asked questions around how COVID-19 is impacting mortgagors.
After the UK government announced a number of measures to support homeowners who are financially impacted by the outbreak of COVID-19, banks soon followed suit. But the reporting on what’s available has been confusing and, in this time of uncertainty, it can be tricky knowing which headlines you can trust – and which schemes you’ll benefit from the most.
That’s the advantage of having a financial adviser. They can assess your individual circumstances and explain how the new measures, and the options, could impact you personally – and make you aware of any small print that might apply before you commit to a course of action. Below, we cover some of the most commonly asked questions a St. James’s Place Partner coud help you with if you’re finding it difficult sorting the facts from the fiction.
Q. How does the three-month payment holiday work?
A. If you’re a mortgagor and you’re suffering financial difficulty as a result of the COVID-19 outbreak, you can request a ‘payment holiday’ form your lender with immediate effect. Simply put, this allows you to take a break from making your contractual monthly mortgage payment for up to three months. While lenders will report a payment holiday to credit reference agencies, they have confirmed it won’t have an impact on your credit score – except where you’ve stopped paying your mortgage without first consulting them.
Q. Are there any alternatives to a payment holiday?
A. One option may be to temporarily switch from repaying the capital amount borrowed, as well as the accrued interest, to just covering the interest. Whether you opt for the three-month payment holiday or the interest-only repayment plan, it’s important to remember that interest will continue to accrue on your mortgage balance. Any missed payments will be added to the overall outstanding amount and divided over the remaining term. This will likely mean a slightly higher monthly mortgage payment when the payment holiday is over – unless, for example, your lender agrees to extend the term.
Q. What happens to mortgage applications that are in the middle of being processed?
A. If you’ve been offered a mortgage for a purchase, the lender should (where required) extend the term of the offer – until such time as it is physically safe and able to complete. If, at any stage of the process, your circumstances alter (for example, you suffer a reduction in income or the loss of your job), this constitutes a material change of information and you will need to inform the lender. If there is no change in circumstances, then the case should proceed as normal (given the current situation) and the offer will be extended if necessary.
Q. How are lenders carrying out valuations and surveys at present?
A. Surveyors have not been classed as key workers and, due to the possibility of them transmitting coronavirus by entering different properties and meeting with property owners, nearly all physical valuations have currently been suspended. Lenders are looking for ways around this – but in the meantime, they’re relying on automatic (‘desktop’) or ‘drive-by’ valuations. With the latter, the surveyor doesn’t need to leave a vehicle to provide a valuation. Clearly, the lack of a physical valuation presents a risk to lenders so, in most cases, they have temporarily reduced the maximum loan-to-valuation ratio they will offer to around 65% of the value of the property.
Q. Which mortgage transactions can still go ahead at the moment?
A. The Land Registry is still operational, so remortgages with a lower loan-to-valuation ratio can still be transacted. If you wish to switch to a new rate with your current lender to avoid having to pay a standard variable rate, you can still take advantage of that option, as it doesn’t require a valuation or change of lender. The majority of purchases, however, are on hold for the time being.
Q. Have banks run out of money to lend to people?
A. No. But a number of banks have withdrawn products and reduced the amount they will lend because of staff shortages due to the virus and the difficulty in obtaining a survey on the property.
Q. What is the wider impact going to be on the property market?
A. In the short-term, the market will be static due to the restrictions on property sales. However, when isolation is over, estate agents re-open and physical surveys and valuations can be completed again, there’s nothing to indicate that the property market won’t continue as before.
Looking ahead to 2021, Paul Johnson, client banking and mortgage manager at St. James’s Place, is optimistic about the future of the housing market. “Banks are still wanting to lend,” he says. “People who have been stuck at home for three months may come out of lockdown wanting to move areas, or find somewhere with a garden. We’re preparing for a significant bounce back.”
For now, though, says Johnson, it’s important to consult with experts and consider all of your options. “If, say, you’re planning on taking a mortgage payment holiday, remember to read all of the small print first. Our advisers will provide you with any relevant information and the professional guidance needed to make an informed choice – one that’s right for you.”
Worried about the impact the COVID-19 pandemic could have on your mortgage situation? Or simply want to understand more? Whatever’s on your mind, our St. James’s Place Partners can help. Just ask.
Your home may be repossessed if you do not keep up repayments on your mortgage.