Current news events have shaken the financial system. Mortgage Lenders have adapted and changed policies, this is a summary of the new Mortgage Landscape.
Over the last four weeks we have seen a dramatic tightening in the Mortgage Market. Many high LTV products have been withdrawn, some Lenders have ceased accepting applications and others have repriced products for ongoing cases (an action we haven’t seen since 2008). However, it seems that the tightening has slowed and the market is now settling on a consensus.This blog will set out what I believe to be the baseline for the next few months. There will be some changes as ‘riskier’ products start to re-enter themarket, but I doubt that Lender’s offerings will contract much further. As one Lender put it to me “we’re currently in first gear, as confidence returns we’ll move into second and second and then third”.
Uplift, being able to operate remotely, is one of the luckier businesses to be impacted and we will continue to operate for the foreseeable. We are now able to process cases all the way to completion without a physical valuation (so, while on Lockdown). I’m happy to report that Uplift has successfully completed our first case submitted during the Lockdown, it was done entirely remotely.
There will be 5 sections to this blog:
- Buy to Let Purchases and Remortgages to 75% LTV with remote valuations
- Residential Purchases and Remortgages to 85% LTV with remote valuations
- Bridging Loans to 70% LTV with remote or physical valuations
- Process other cases to the point of valuation, this will secure the product and we will wait until valuers can again visit properties before an Offer is issued.
There is a still a diversity of opinion on whether prices will fall. Analysts have come out with estimates ranging between 3.5% and 13.5%. Mortgage Lenders and Estate Agents are experiencing reduced enquiries of between 60%-85% depending on who you ask. Personally speaking, I can’t see how prices wo’nt fall with that level of decreased demand. I am budgeting for a 10-20% price fall in any case I’m processing.
Potentially falling prices have encouraged some to pull capital out now to invest in cheap deals over the summer.
Those with ongoing purchases are deciding whether to push through completions now or negotiate a reduced purchase price. The Government has now issued advice against completing property purchases during the lockdown. This will form a good basis for renegotiation. Of course, this is highly dependent on your individual circumstances.
I would strongly encourage anybody looking to remortgage to get that throughquickly. It will be better to do this before prices fall (if that is indeedabout to happen).
Now we are in challenging times the differences in how Lenders are funded, how they run their operations and their general characterhas become much more important.
- Operations - Larger Lenders (like the high street banks) have been slowest to get their staff working from home, some shut down phone lines while staff process payment holidays for existing clients. Smaller Lenders have generally been quicker to adapt.
- Funding– Banks and Building Societies are generally lending their own money and have not had to cease new applications. The Lenders who are reliant on selling their debt tothe securitisation market have ceased lending, these are mostly Specialist Lenders. There are then shades of grey in-between those two ends of the spectrum. Some Lenders have a mixture of funding options, they are reducing their offering but not stopping it entirely.
LTVs have been lowered across all product areas.
After the Bank of England reduced the base rate there were some people anticipating rate drops, this has not happened. There have been reports of the average interest rates reducing. In my opinion, this is because the maximum LTVs have been reduced rather than rates actually dropping. In other words, a given Lender’s 75% LTV rates are still roughly the same it’s just that they’re no longer offering the 90% rates (which are more expensive and pull up the average). Some specialist cases have seen rates increase, i.e.one HMO Lender increased rates by 0.4%.
Serviced Accommodation Landlords have been hit hardest. Airbnb said in statementthat they will be halting all bookings apart from those for Key Workers.
Some Bridging and Development Finance Lenders have stopped accepting new business while the situation develops. Some Peer to Peer Development Finance Lenders may hit trouble, there have been rumours of investors pulling money from a well known Peer to Peer Lender.
Several Specialist Lenders* have ceased accepting new applications, many of these sell their mortgages on to Investment Banks who securitise their debt. I’ve put a summary of the Lenders in the specialist market before and after the Lockdown. The available Lenders have reduced from 21 to 13. That’s a 38% drop. We are still able to deal with HMOs, Adverse Credit andother specialist areas but have fewer options than before.
*Information recorded on 16/04/2020. I’m using my judgement to define ‘Specialist Lender’ here, there are some building societies that deal with riskier cases I have not included. To me, the below list is a fair representation of the Limited Company, HMO-friendly, Adverse Credit group of Lenders.
Connells and other large surveyors have put all inspections on hold until further notice. There may still be the odd specialist valuation completed by smaller firms for Bridging and Commercial cases. As Mortgage Lenders only use the large providers, mortgage valuations have effectively stopped.
The Lenders who are well funded (and therefore want to keep lending) have all either brought out Remote Valuation options or have indicated that they will be doing so soon. If you want to see how your property would fair with a remote valuation, I can arrange this for £26 + VAT. There are two kinds of remote-valuations:
- AVMs (automated valuation models)– this is a valuation generated by an algorithm. If you’ve ever searched for a property in Zoopla you might have seen Zoopla give its estimated value, this is an example of an AVM.
- Desktop Valuations– this involves getting a valuer to look at the property online and give an opinion on value with whatever information they have.
The Land Registry has confirmed it can still record transfers of property in England and Wales while on lockdown. This is good news for purchases.
The Government issued advice asking people not to exchange on new purchases until the Lockdown is lifted. Mortgage Lenders have started to extend current mortgage offers by three months. Many purchases are still going ahead none-the-less.
Mortgage Lenders are offering payment holidays on Residential and Buy to Let mortgages. If you are affected please do calland ask for a payment holiday. Lenders have shown admirable flexibility. I’m aware of at least one client who has been granted payment holidays on unsecured loans. I have the feeling all providers of credit (loans, credit cards, hire purchases) have been encoraged to show flexibility.
The Bank of England lowered the base rate to 0.1%, the lowest in history.
There was a suite of business support measures introduced including the CV Business Interruption Loan Scheme (CBILS). CIBLS initially had a slow start with banks not lending, this seems to be easing up now.
Along with this we had income support measures for employed and self-employed people, guaranteeing 80% of salary for three months incertain circumstances.
I hope you are all doing well through this unusual period.As always I’m on the end of the phone for any questions. If any friends or family hit financial difficulty and need help with their mortgage I am willing to waive my fees. This is only for those in genuine trouble and will not apply to investment transactions.
Please forward this on to anybody who may find it interesting.
All the best,
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The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. Not all products and services mentioned are regulated by the Financial Conduct Authority. Your home may be repossessed if you not keep up repayments on your mortgage or secured debt