Coronavirus and UK Mortgages: Everything You Need to Know
The coronavirus pandemic has plunged Britain into uncertainty and the financial lives of many have been impacted. Help is at hand, though, as many of the UK’s leading mortgage lenders have pledged to support those whose income has been hit.
📢 *UPDATE: We have added a mortgage payment holiday calculator tool so you can get an idea of how your payments are likely to change if you were to take a three-month break. Click here to get started 🏠
So, exactly what impact is the coronavirus having on the industry? What options are available if you’re struggling to make your mortgage payments? And what are the implications of taking your mortgage lender up on the help they’re offering?
Our myth-busting guide to coronavirus and mortgages answers these questions and more.
What impact is the coronavirus having on mortgages?
📢 *UPDATE: Some mortgage lenders have suspended certain products in the current climate, while face-to-face property viewings have been placed on hold while the country is in lockdown. You can, however, still speak to a broker to prepare for a mortgage application ahead of the industry resuming, enquire about a remortgage or get independent advice bespoke to your current circumstances
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 rates drop to 0.1% on 19th March, a move which saw interest rates fall to their lowest level in the bank's 325-year history. The bank has also ramped up its bond-buying activity.
This means that the cost of borrowing money has dropped to its lowest level, and that’s good news for some mortgage customers, especially those on standard variable rate (SVR) deals with lenders who’ve adjusted their rates and homeowners on tracker-rate mortgages, who could see savings of up to £40 per month.
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…
- 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. Tracker rate customers who took out their 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 have since suspended certain mortgages, with more 900 mortgages being withdrawn since the bank announced its second rates drop. HSBC has pulled its tracker-rate deals and Barclays and Halifax have suspended all products with a loan-to-value (LTV) ratio higher than 60%, to name but a few high profile examples.
Tracker rate mortgages have been 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.
📢 *UPDATE: The Ministry of Housing, Communities and Local Government (MHCLG) is urging members of the public to avoid moving home where possible while isolation measures are in place but has stated that there's no need to pull out of transactions that are already in progress. You can, however, still speak to a broker to prepare for a mortgage application ahead of the industry resuming, enquire about a remortgage or get independent advice bespoke to your current circumstances
Even with 40% deposit or more, there's still no guarantee you can get a mortgage as a new applicant as other factors have slammed the breaks on the market, chief among them the suspension of face-to-face valuations and surveyor checks.
This has made it difficult for lenders to process new applications, but there's no reason why you shouldn't speak to a broker to prepare for your mortgage application ahead of the market gaining momentum when the coronavirus crisis is over.
If you're in the process of moving home, the government has published a set of guidelines on its website. They state that pulling out of a transaction that's already progressing is not mandatory, but urge all parties involved in the move to "adapt and be flexible".
Can I still apply for an agreement in principle?
Yes. Mortgage offers last for six months so it's possible to apply for an agreement in principle now to take advantage of the low rates. However, 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?
In line with the government's advice, mortgage lenders are suspending all on-site valuations during the coronavirus outbreak. Among the first to do so were Halifax, Natwest, Santander and Pepper Money.
However, you may still be able to have a property valued as some lenders have pledged to carry out remote and drive-by valuations where possible.
If your mortgage deal requires a physical property valuation before it can be completed, it may have to be placed on hold, but it's worth speaking to a broker to find out whether a remote valuation will suffice. If a full valuation was carried out on the property in recent years, this could be the case.
Should I still remortgage?
Some lenders still have the capacity to consider remortgage applications, especially if a valuation was carried out on your property in recent years.
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?
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, but there has since been more positive news for people looking to purchase their first property.
Some lenders such as Halifax Intermediaries are reintroducing products for first-time buyers, including 80% LTV deals on two and five-year fixed rate agreements.
When announcing the return of these products, Halifax also confirmed that it aims to carry out remote valuations on properties where possible as a workaround solution to the suspension of on-site visits.
Can I get a mortgage while on furlough?
Provided a remote valuation can be carried out on the property you're buying, you can still apply for a mortgage while on furlough. However, some lenders, such as Natwest and Nationwide, are only offering furloughed borrowers mortgages based on their furlough wages.
It may be possible to find a lender who is willing to offer you a deal based on a multiple of 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.
You can read more on this in our guide to mortgage applications during and after a furlough.
How will house prices be affected?
It's difficult to measure the exact impact of the coronavirus on the property market so far as the most reliable source for house price data, Land Registry’s UK House Price Index, has only published stats up to January this year.
However, the market is almost certain to see a slowdown since estate agents have been forced to close their doors temporarily and many banks and building societies have withdrawn mortgage products.
Indeed, property portal Zoopla is predicting a 60% downturn in house sales over the next six months but is not anticipating this to cause an immediate dip in property prices. The firm is quick to point out that whether house prices are impacted will depend on the success of the government's support packages for businesses and households.
How long the crisis goes on for was also cited as a factor that will determine whether the market is able to bounce back when the crisis is over.
What can I do if I can’t pay my mortgage because of coronavirus?
On 17th March, 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, but what exactly does that mean, 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.
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 three month mortgage holiday is the 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: 0345 1200 872
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 3374
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.
Could my mortgage holiday last longer than three months?
Given that the coronavirus crisis has plunged the industry into uncertainty, the Financial Conduct Authority (FCA) isn't ruling out extending these mortgage payment holidays if necessary.
The industry regulator is pledged to review its guidance over the coming months and may extend the payment breaks if this is appropriate and in customers' best interest.
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…
- Extending your mortgage term
- Switching to interest only
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.
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.
Second charge mortgages
Those who cannot remortgage or do not wish to might want to consider a secured loan (or second-charge mortgage) if they're in need of additional borrowing. This is basically a secondary loan secured against the equity in your property. You can read more about them in our guide to second charge mortgages.
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 check 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.
What do the coronavirus measures mean for landlords?
📢 *UPDATE 31/03/20: The government has published official guidelines for landlords and tenants that addresses key questions such as rent arrears and buy-to-let mortgage repayments during the coronavirus crisis. You can read them on the government's website
Landlords are, in some cases, eligible for the three-month mortgage payment holiday and are at no risk of repossession action for the time being. However, this doesn't apply across the board. Barclays, for instance, is not offering mortgage payment holidays to its buy-to-let (BTL) customers and is currently "reviewing" how best to support BTL borrowers.
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.
For the next three months, landlords are unable to evict tenants for missing rental payments due to financial hardship.
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.
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