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Coronavirus and UK Mortgages. Updated 04/03/21

By Pete Mugleston

Published: 19th March 2020 Last updated: 19th August 2021
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UPDATED 04/03/21

The coronavirus pandemic has plunged Britain into uncertainty and the financial lives of many have been impacted. Help is at hand, though, as most of the UK’s leading mortgage lenders have pledged to support those whose income has been hit and the government unveiled a raft of measures to help people get on the property ladder during its Spring Budget.

📢 *UPDATE: Our latest update includes information about the measures introduced by the government during its 2021 Spring Budget 🏠

So, exactly what impact is the coronavirus having on the industry? Is it more difficult to get on the property ladder during these uncertain times? And what options are available if you’re struggling to make your mortgage payments?

Our myth-busting guide to coronavirus and mortgages answers these questions and more.

What impact is coronavirus having on mortgages? 

Is it a good time to apply for one?

How are things different during the third national lockdown?

Can I get a mortgage while on furlough?

How will house prices be affected?

What measures were announced during the 2021 Spring Budget?

What to do if you can’t pay your mortgage

Mortgage payment holidays

⭐ Mortgage payment holiday calculator

How to apply for a payment holiday

Alternatives to a payment holiday

Remortgaging

Extending your term

Switching to interest only

Insurance payouts

How does this affect landlords?

What impact is the coronavirus having on mortgages?

📢 *UPDATE: Some mortgage lenders suspended certain products when the crisis hit, but things have since improved dramatically. The market has remained strong through much of the pandemic and the government’s recently-announced mortgage guarantee scheme will prove a welcome boost for first-time buyers and people with low deposits

As the effects of coronavirus uncertainty crept in, the Bank of England reduced its base rate from 0.75% to an historic low of 0.25%. This was followed by a further rate drop to 0.1% on 19th March, which is the lowest it has ever been in the bank’s 325-year history. The bank has also ramped up its bond-buying activity.

This is good news for some mortgage customers, especially those on standard variable rate (SVR) deals with lenders who’ve adjusted their rates in kind.

Many of the UK’s leading mortgage providers dropped their SVR rates in response to the bank’s initial interest rates cut, and they include…

  • Barclays
  • Nationwide
  • Natwest
  • Lloyds
  • HSBC
  • Santander
  • TSB
  • Virgin Money
  • And many more

Further rates drops were announced following the dip to 0.1%. Virgin Money, for example, cut its variable rate by 0.65% across all mortgage products.

Customers with existing fixed-rate mortgages will not see their interest rates decline as a result of the emergency rates change, regardless of which lender they’re with. Those who have a tracker rate mortgage before the crisis hit will, however, benefit.

Does that mean it’s a good time to apply for a mortgage?

When the rates drops were announced, some experts urged customers to press ahead with mortgage applications due to tracker and standard variable rates products being offered at low-interest rates and favourable fixed-rate deals also hitting the market.

However, many mortgage lenders later suspended certain mortgages, with more 900 products being withdrawn after the bank announced its second rates drop. HSBC pulled its tracker-rate deals and Barclays and Halifax suspended all products with a loan-to-value (LTV) ratio higher than 60%, to name but a few high profile examples.

Tracker rate mortgages were the biggest casualty, with this product category falling by 47% in terms of deals available to new applicants, according to data from Moneyfacts.co.uk.

📢 Things have improved dramatically since the nation went into lockdown during the first wave of coronavirus. Mortgage products, including higher LTV deals, are returning to the market every day. Moreover, the government’s new mortgage guarantee scheme has been announced to help people buy a home with just 5% deposit.

Can I still apply for an agreement in principle?

Yes. There’s nothing stopping you arranging an agreement in principle now but you should be aware that the interest rate is usually only secured when you submit the full application.

Be sure to seek professional advice before going ahead with that as things can change suddenly during times of economic uncertainty.

Are property valuations still taking place?

They were suspended during the first wave of COVID-19, with many mortgage professionals seeking workaround solutions such as automated valuation models while the nation was in full lockdown.

Since then, however, on-site valuations have resumed with new safety measures in place, including social distancing, the use of PPE and stringent deep-cleaning regimes.

During the latest national lockdown, announced by Boris Johnson in January, property valuations were allowed to continue with government guidance on social distancing and working in other people’s homes in place. Some mortgage companies may also have additional rules in regulations to ensure that their property valuations are fully safeguarded against COVID.

Should I still remortgage?

Remortgaging now could help you take advantage of the current rates or help you through a difficult time by making your payments more affordable. However, seeking expert advice before applying for any finance is strongly recommended as things could change without warning during times of economic uncertainty.

If you’re locked into a fixed rate and want to find out whether leaving the agreement is a viable option, check out our guide to getting out of a fixed-rate mortgage early or make an enquiry with us.

How have first-time buyers been impacted?

📢 UPDATE 04/03/2021: The government announced a new mortgage guarantee scheme during the Spring Budget to help people buy a home with just 5% deposit. The initiative will kick off in April

Mortgage products aimed at first-time buyers – namely deals with low deposit requirements and high loan-to-value (LTV) ratios – were among the first to be withdrawn from the market. To make things even more challenging, house prices recently hit a record high, but it’s not all doom and gloom for people looking to purchase their first property.

Some lenders such as Halifax Intermediaries have reintroduced products for first-time buyers, including higher LTV deals on multi-year, fixed-rate agreements. Others are offering quickfire deals only available for a couple of days. They’re doing this to make sure they don’t get overwhelmed and they’re normally only available through brokers.

How are things different during the third national lockdown?

The third national lockdown came into force on 5th January and the restrictions introduced are due to come under review in England on 15th February, and at the end of the month in Scotland.

As was the case during lockdown number two, the restrictions imposed on the mortgage and property industries have not been as strict as they were at the beginning of the pandemic.

Housing Secretary Robert Jenrick has revealed how the latest lockdown restrictions will affect these sectors, and there is good news for anyone looking to buy a property, move house or renovate their home. He said…

  • Renters and homeowners will still be able to move
  • Removal firms and estate agents can still operate
  • Construction sites can still continue
  • Tradespeople will be able to enter homes
  • The deadline for applying for a repayment holiday is 31st March

The latest official advice for home-movers can be found on the government’s website.

Can I get a mortgage while on furlough?

You can still apply for a mortgage while on furlough, which has been extended until September 2021.

It may be possible to find a lender who is willing to offer you a deal based on your full-time salary, but it might be the case that you need to provide proof that your job is secure and your salary has returned to normal, such as a letter from your employer. Some lenders are also requesting to see borrowers’ first payslip since returning to work, to safeguard themselves against ‘furlough fraud’.

You can read more on this in our guide to mortgage applications during and after a furlough.

How will house prices be affected?

UPDATE 04/03/2021📢 House purchases have continued to see an upward trend in the early months of 2021. According to UK Finance’s Household Finance Review, they reached their highest quarterly level since 2007 during Q4

House prices began to rise during the pandemic, and in October, they increased at the fastest rate in four years, according to recent data from Halifax. The bank also confirmed that new mortgages applications have reached a 12-year high.

The average house price in England is now £249,870, an increase of nearly £4,000 compared to September.

Pent-up demand from the first national lockdown and the chancellor’s stamp duty holiday are thought to be driving forces behind the surge in mortgage applications.

Experts are predicting that the end of furlough and the government’s mortgage support schemes will affect the property market’s growth, but to what extent remains to be seen.

What measures were announced during the 2021 Spring Budget?

As part of its measures to boost the nation’s economic recovery, the UK government revealed a raft of measures for the mortgage industry and COVID-era housebuyers during its 2021 Spring Budget.

Chief among them is a new mortgage guarantee scheme which will help people get a mortgage with just 5% deposit. Mortgages with a 95% LTV virtually disappeared during the pandemic, but the new initiative aims to bring them back to the fore, with the government sharing some of the risk lenders will be taking on by offering 5% deposit mortgages.

You can read all about the scheme, how it works and how a broker can help you make the most of it in our complete guide to the 2021 mortgage guarantee scheme.

Also announced during the Budget was an extension to the stamp duty freeze that has been helping to drive house sales during the pandemic. The property purchase tax will remain suspended on the first £500,000 of all sales in England and Northern Ireland until the end of June.

Moreover, when the stamp duty holiday ends, the nil rate band will be set at £250,000 – double its normal level – until the end of September.

You can read more about the stamp duty relief on the government’s website.

What can I do if I can’t pay my mortgage because of coronavirus?

On 17th March 2020, Chancellor Rishi Sunak announced that anyone who is unable to make their mortgage payments due to the impact of coronavirus can apply for a three-month payment holiday.

📢 Mortgage payment holidays were due to end during the first weekend of November, but the scheme has been extended to cover homeowners through subsequent national lockdowns. The Financial Conduct Authority has confirmed that the latest extension will allow mortgage borrowers to defer payments for up to six months.

But what exactly is a mortgage payment holiday, and is it your only option? Read on to find out…

What is a mortgage holiday?

A mortgage payment holiday is an agreement between you and your lender that will allow you to stop or reduce your mortgage payments for a set amount of time. They can ease the financial pressure during difficult times, but they’re not without their drawbacks.

Anyone considering a mortgage holiday should bear the following in mind…

  • Eligibility for the holiday is on a bank-by-bank basis, so speak to your lender to find out whether you qualify and on what terms and conditions
  • While you aren’t making your mortgage payments, the interest is still building up so your monthly payments will be higher when they’ve resumed
  • When the holiday is over, your mortgage balance and payments will be higher

Your credit report would usually be affected by a mortgage holiday, but under these circumstances, that’s not necessarily the case. Many of the UK’s leading lenders, such as Halifax and Nationwide, have confirmed that customer credit files won’t be impacted.

It’s always worth checking with your mortgage lender to make sure this applies to them.

Try our mortgage payment holiday calculator

For those wondering how their mortgage payments are likely to change after a payment holiday, we’ve created the online calculator below. This online tool will give you a rough idea of how much you will have to pay each month after taking a three-month break.

Simply enter your mortgage value, fixed-rate, term, the date you took it out, the length of the holiday, and then hit ‘calculate’. The tool will do the rest…

Please note that our mortgage calculator tool is designed to give you a rough estimate of how your mortgage payments are likely to be affected by a three-month break. For an accurate calculation bespoke to you, make an enquiry to speak with an independent mortgage broker.

How to apply for your three-month mortgage break

If the impact of coronavirus has affected your finances and you think a mortgage holiday is a right solution, get in touch with your lender and explain your situation to them. Be sure to ask them what other options are available since mortgage payment holidays are often only recommended as a last resort.

Below you will find the number to call for each lender…

Accord: 0800 138 2401

Aldermore: 0333 321 1000

Bank of Ireland: 0345 300 8000

Barclays: 0800 022 4022

BM Solutions: 0345 300 2627

Clydesdale: 0800 022 4313

Coventry Building Society: 0800 121 8899

Fleet: 01257 916 800

Halifax: 0345 850 3705

HSBC: 0345 850 0633

Kensington: 0800 111 020

Kent Reliance: 0345 671 7274

Leeds Building Society: 0345 050 5075

M&S Bank: 0345 002 1127

Metro Bank: 0345 319 1200

Nationwide: 0345 730 2011

Natwest: 0800 092 9585

Newcastle Building Society: 0354 606 4488

Nottingham Building Society: 0344 481 1224

Paragon: 0345 849 4060

Platform: 01752 236 550

Post Office: 0800 169 9722

Precise: 0800 116 4385

Principality Building Society: 0300 333 4000

Sainsbury’s: 0800 923 1547

Santander: 0800 783 9738

Scottish Widows: 0345 845 0829

Skipton Building Society: 0345 850 1711

The Mortgage Works: 0800 030 4060

TSB: 0345 835 3380

Virgin Money: 0345 602 8301

Many banks and building societies, such as Royal Bank of Scotland, confirmed that they would offer mortgage holidays to coronavirus-affected customers before the Chancellor’s announcement, while other lenders are providing different forms of support – waiving missed payment fees and giving customers the option to switch rates, for example.

Read on to find out what other options might be available to you or make an enquiry with us to get independent advice from an expert mortgage broker.

Can I take a payment holiday if I’m behind on my mortgage payments?

This could still be possible but contact your lender to find out for sure. They can tell you whether a payment holiday is the most appropriate course of action for somebody who’s in arrears and may offer you alternative support.

For independent advice on this, make an enquiry to speak with one of the expert brokers we work with.

Alternatives to a mortgage payment holiday

Since taking a mortgage payment holiday can have financial consequences in the long term, it’s worth exploring alternative options to make sure it’s the right decision for you.

Potential alternatives may include…

  • Remortgaging
  • Extending your mortgage term
  • Switching to interest only

Remortgaging

If coronavirus uncertainty has reduced your earnings, remortgaging with your current lender or switching to a different one could make your repayments more manageable. There might be more favourable rates on offer elsewhere, ones you could afford on reduced income.

Home-owners with other outstanding debts could also speak to their broker about a debt-consolidation remortgage. Rolling other outgoings onto your mortgage could potentially mean paying out less each month.

Moreover, if you have equity built up in your property, a remortgage could free up that capital so you can set it aside for the months to come. This, however, isn’t a decision to be taken lightly, so be sure to seek professional advice before going ahead.

Extending your mortgage term

Renegotiating the length of your mortgage term with your lender could mean your monthly payments are smaller, and therefore more manageable on a reduced income. Just keep in mind that lengthening your term will likely mean paying more in interest overall.

Switching to an interest-only mortgage

Assuming your mortgage was taken on a repayment basis, switching to an interest-only deal could help you reduce your monthly outgoings. With an interest-only mortgage, you are only obliged to pay off the interest each month, with the loan balance due at the end of the term.

Since you’ll need to settle up at the end, mortgage providers will only lend under these circumstances if you can evidence a repayment vehicle in advance.

If you think that switching from a repayment mortgage is the right option for you, check out our guide on switching to interest only for more information or make an enquiry to speak with an expert broker.

Check your insurance policies

It’s worth checking the small print of any relevant insurance policies you have to find out whether they include things like redundancy or sickness cover.

For company owners with business interruption insurance, the government has announced measures to make sure insurers pay out for this and is offering loans and grants for eligible firms who don’t have this protection.

The Financial Conduct Authority (FCA) has some useful information about coronavirus and insurance policies on its website.

The above are merely a handful of the potential alternatives available to you. For more information check out our article on what to do if you can’t afford to pay your mortgage or make an enquiry to talk things over with an independent broker.

And for general advice about the coronavirus outbreak, consult the government’s website.

What do the coronavirus measures mean for landlords?

Landlords are, in some cases, eligible for mortgage payment holidays and are at no risk of repossession action for the time being. However, this doesn’t apply across the board.

If you’re a landlord who’s struggling to pay a mortgage due to a decline in rental income, contact your mortgage lender to find out what support is available. Expect them to request evidence that your tenants are unable to meet their rental payments due to the coronavirus crisis.

Measures are in place to protect renters who are struggling with financial hardship during the pandemic. These include legislation to delay when landlords can start eviction proceedings to give tenants longer notice periods.

The government has published guidance on coronavirus and renting on its website, information which applies to landlords, tenants and local authorities.

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