Can I still secure a mortgage during the pandemic?
The housing market took a big hit as the pandemic took hold in the UK. Estate agents were amongst those businesses forced to close their doors. Home viewings were cancelled and agents tried to adapt by offering virtual video tours. You might assume that buying a house during this time would be impossible, but this isn’t entirely true.
Banks and lenders are still accepting mortgage applications and home sales are still going through. It may take longer and there may be far more obstacles to overcome, but it is still possible to secure a mortgage during the pandemic.
According to Money Facts, there are currently 4574 mortgage products available. In March 2020, there were around 5,222 mortgage products available. This fell to just 2,566 at the start of May 2020. So while the number is starting to show an improvement, there are still fewer mortgage products available to lenders as a result of the pandemic.
How does this affect buyers?
With fewer mortgage products available, getting a mortgage at this time will simply mean less choice. Lenders have also made changes to their lending criteria, so you might not be able to borrow as much as you could have at the start of the year.
Lenders look to the global markets for stability and reassurance. When there is uncertainty, lenders are less likely to take a risk. When the markets are stable and thriving, lenders are more likely to offer generous mortgages.
While not permanently changed, your circumstances may now be different. For example, if you have been furloughed on reduced pay, this could make it more difficult to secure a mortgage. You might also see bonus payments reduced, and if you work on commission, this may also have an impact on your wages.
The self-employed could be the only group unaffected by the changes. This is because their income is determined by previous tax returns, so their current income will be under less scrutiny. If you are self-employed and still able to work, this could put you at a unique advantage.
Is now the right time to buy?
During times of uncertainty, those who are not averse to a certain amount of risk might be wondering if they can pick up a property for cheap. With mortgage valuers unable to visit properties to provide a valuation, many banks and lenders have switched to automated valuation models to provide a valuation without the need to visit the property. One AVM provider Hometrack has seen a 500% increase in use since the lockdown began.
How does this affect buyers?
This might add more time to your mortgage application. At the moment, lenders are taking between ten and 20 days to generate a mortgage offer using the AVM systems.
A lender might carry out a “desktop” valuation, where a qualified surveyor can sign off on the valuation by using their expert knowledge of the local area and “street view” images. There is also the option for a “drive-by” valuation, where a qualified surveyor uses information available about the property and a visit to the curbside to provide a valuation.
There is an ongoing debate about the accuracy of an AVM. If you are unsure if it is suitable for you, then waiting until physical property inspections can continue would be easier.
How can I increase my chances of being accepted?
If your income has been unaffected and you are not accepting any government help, the best thing you can do is to continue paying your bills as normal. It can be tempting to accept payment holidays, especially when they are freely offered, but this could be noted on your credit report if something goes wrong.
While a payment holiday should not be reported to credit checking agencies as a missed payment, there is always a chance a mistake could happen. This could set your application back significantly. Keep an eye on your credit report during this time so that you can act on any mistakes or errors as quickly as possible.
How much deposit do I need?
When there is market uncertainty, lenders do whatever they can to manage their risk. One popular method is to reduce the number of high LTV mortgages. This means that it may be more difficult to secure a loan with a 5% deposit than it was just six months ago. If you were hoping to secure a mortgage with a 5-10% deposit, this might not be the best time to move forward with your application.
The good news is that experts are predicting that the global markets will bounce back quickly. Once movement is restored and businesses can go back to normal, productivity will increase and confidence will be restored. We could eventually see lenders relax the application criteria and offer more generous mortgages.
While this financial crisis might remind you of the 2007-08 financial crash, the underlying factors are very different. In 2007, many lenders pulled out of the market entirely or increased their lending requirements to include a 40% deposit. We haven’t yet seen reactions like this, and there is no reason to believe we are heading in this direction. Once movement is restored and businesses can go back to work, we expect confidence will be restored and lenders will be back to business as usual.
If you are concerned about the uncertainty, it may be best to wait until the pandemic has subsided before making any large financial commitments.
The editorial unit