So, what now for the mortgage market? As the dust starts to settle over the last few weeks events, some patterns are emerging and it is clearer what our challenges are going to be over the coming weeks and months. Below is a summary of what you can expect in respective areas of the market.
House Purchases – what now for the mortgage market?
There have been calls to halt the house purchase market until the worst is over with COVID-19 and I would not be surprised if we see that happening shortly.
For obvious reasons, all major surveying firms have taken their valuers off the road for now. That is expected to be for the initial 3 week ‘lockdown’ hinted at by the Prime Minister, but if we are to look at Italy and Spain, that period could end up being quite a bit longer. If you are in a position to move, and need to do so, I would urge you conclude this as quickly as possible before it becomes impractical to do so. Some lenders do offer ‘drive-by’ or ‘desktop’ valuations at present, especially if you have a larger deposit, so lender selection on their ability to carry out a survey, not their pricing, will be the key factor here.
Also, we are seeing lenders withdraw a lot of high ‘Loan to value’ (or LTV) mortgages as a safeguard if property prices drop. That means people with less than a 25% deposit will have far fewer options than they did a few weeks back. We have seen some lenders go as far as needing a 40% deposit to apply with them. There are still options around if you have just a 5% deposit, but as some of the large lenders have made that move, do not be surprised if others follow suit in the coming weeks.
Remortgaging – what now for the mortgage market?
Aside from the survey challenges and product reductions outlined above, the remortgage market remains relatively unaffected.
As above, lenders do not always conduct physical inspections when you remortgage in any case. As a broker, we have access to lenders back office systems directly, so we aren’t reliant on being able to speak to a person or having to visit a branch as you would have to do if you deal with them directly. This is a huge advantage at a time like this when banks resources are stretched to capacity (and beyond in many cases).
Our advice is to secure a new products as quickly as possible. It may take a lot longer than normal to process your application, and if you do require a survey, there is going to be a huge backlog when valuers go back on the road so the earlier you move, the further you will be up the queue when that happens. Also, initial indications are that rates will start to creep up from now, so the earlier you secure a deal, the cheaper it is likely to be.
Lender Service – what now for the mortgage market?
As alluded to above, lenders are really struggling at present. As they are having to manage extreme call volumes around mortgage holidays, being short staffed due to people self isolating, and on top of that, not geared up for remote working.
That is a cocktail for disaster in terms of service. Again, we can by-pass the majority of this, but please do be aware that applications will take a long time and may take many, many months to return to normal. Smaller lenders have pulled most, if not all, their products in order to manage both service and funding issues, so if speed if required, again, the lender capacity is the priority, not their pricing.
Specialist Lending – what now for the mortgage market?
We are seeing Specialist lenders being hit pretty hard, both in terms of service and funding. ‘Specialist Lending’ is a very broad terms but encompasses things like Bridging Loans, Development Finance, Adverse Lending (if you have had credit issues in the past) & other niche lending requirements.
You often don’t know have a complex situation or even past credit issues until you come to apply for a loan, but if you do require lending in this area, or suspect you may be affected, our advice is to move quickly or you could have to wait many months until the market returns to normal
As important as it is for us to source you the correct mortgage, it is equally important that we protect you and your family. At a time like now that really doesn’t require any explanation as to why. So in this area, please be aware that the cost of cover will start to increase over the coming weeks as insurers get hit with more claims and losses.
Also, we are seeing insurers put in tougher underwriting and more ‘exclusions’, meaning they won’t pay out in instances of pandemics etc. Like the lenders issues above, that is not the case for all and we know exactly who has and who hasn’t made these changes, so as per the theme of this article, please move quickly as you will secure not just cheaper terms, but more comprehensive cover.
As insurers adjust (which does take months), later policies’ issues won’t have the some breadth of cover as they do now. They are also suffering the same service issues that Banks are for the same reasons and as you can imagine. If a GPs report is required that is going to prove quite problematic for some time. So again, please speak to us so we can navigate these issues for you.
Aside from some of the smaller/specialist lenders above, funding remains good and we don’t see a major issue like money drying up as it did in 2008. Banks have considerably more funds on deposit than they did back then and the Bank of England has relaxed some rules so they can use those funds at a time like this.
So we aren’t expecting a ‘credit crunch’ style problem. The issues will be more practical as lenders and insurers tackle lower staff numbers and a busy time.
Money market rates were published for the first time in nearly 3 weeks on Friday. It has shown that there is a marginal decrease in rates since the start of March. Considering that the Bank of England has slashed rates by 0.65% to 0.1% in that time, it has justified their actions to do so, otherwise we would be seeing lenders INCREASE mortgage rates right now. Anyone who is ‘waiting’ for lower rates following the Base Rate cut may well be disappointed. Our recommendation is to move now so that you can secure the current low rates. We are expecting mortgages rate to go UP not down in the short term as LIBOR has been creeping up in the last week. At 26th March money market rates were:
3 Month Sterling Libor = 0.552%
2 Year SWAP = 0.478%
5 Year SWAP = 0.513%
2 Year Variable from 0.84%
2 Year Fixed Rates from 1.14%
5 Year Fixed Rates from 1.39%
BTL Rates from 1.19%
The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our advisers so that they can guide you through this process.
Source: Twenty7Tec March 2020
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