Here Dave Baker provides a round-up of what’s happening within the mortgage market at the present time.
In the last few weeks, the Bank of England (BoE) rate has been cut from 0.75% to 0.10% as part of emergency measures. About 20% of our clients are on trackers who follow the BoE rate; these clients should get a letter from their lender soon to advise of the new lower payments. Some of our clients are on tracker rates, not because we foresaw this event, but because they were unsure of their plans for their property; having a tracker product with no early repayment charges made sense.
When the BoE rate cuts were announced, we were inundated with calls from clients who had not completed, expecting fixed rates to fall. The reality is that what happens to the BoE rate does not directly affect what happens in the fixed-rate markets. The lender is not borrowing money from the BoE, but from third parties or by lending money they have taken over the counter from savers. I haven’t seen a lot of rate reductions with lenders and a large number have increased their fixed rates.
A different type of problem to the past
I have been a mortgage broker/advisor since July 2002; I’ve worked through the credit crunch and the post-Brexit fallout. The former was a genuine issue of world liquidity, even the biggest lenders struggled to get funding together. Brexit was caused by panic at the outcome and again, the liquidity partly dried up for a period. Covid-19 seems different. A lot of lenders have reduced how much they’ll lend, their loan to values and have increased their rates. A few smaller lenders have stopped lending, but the issues aren’t liquidity. This time, the lenders don’t have the workforce to process the business that’s coming in. Staff are in self-isolation or the lenders don’t have the facility for staff to work from home. This has caused a bottleneck in the market. Lenders are innovating and we are already seeing changes in policy to deal with the current market issues.
Lack of surveys and new buyers not being able to view properties
All the lenders I’ve spoken to said that surveyors, understandably, aren’t going out. We’ve had contact from a lot of lenders putting surveys on hold with no definite date when they will resume. Many lenders are increasing the use of online surveys to establish the value of a home. This system works well and can be a godsend to a client, but it tends to be restricted to the lower LTV cases. For many, it’s currently a matter of sitting and waiting for the survey to be done; lenders are working on alternative options as I type.
Many estate agents are doing virtual tours of properties to keep the market moving but I have yet to see a client put an offer in on a property solely as a result of this method.
Practical advice for clients now
For those buying property, my personal view is you can’t stop a transaction based on a short-term blip in the market. I brought a rental property the week before the credit crunch and within a few months, I had lost money. I did nothing and I sold the property last year for a profit. Unless you are concerned about your employment in the short-term, my advice for most clients would be to continue as is. Property has and should always be seen as a long-term investment.
For clients in the remortgage process, I’m encouraging them to stay with their current lender. The lack of surveys/mortgage processors and solicitors means it’s hard to swap lenders. A rate switch with the same provider is easier for the client and they can get a better rate. Now, clients are better off with a rate that is maybe not a market leader but is still reasonable. If you miss your deadline you revert to the standard rate offering little benefit and increasing payments as standard, rates are typically 4-6.5%
If you are on the current standard variable rate with a lender get in touch quickly; we could help to save your money.
Payment holidays might be an option for both residential and buy to let clients with most lenders. Previously, these have been seen as negative by lenders as it can affect a client’s credit score. In light of the current crisis, this should not be the case, clients are advised to check this with their lenders directly as it’s a lending decision.
The key thing to remember is this is a holiday, not free money. For most lenders, if a three-month holiday is taken the lender will add three months onto the end of the term if it’s a repayment mortgage or they will add three months interest to the total debt if it is an interest-only mortgage. So, the client is no better off they are just giving themselves more available cash day to day in the short-term. It’s important to check that taking a payment holiday doesn’t mean a client can’t pick a new deal with the same lender when the current product ends.
Hoping all our clients are keeping well at this tricky time. My team is here if you need us.
Please note: your home may be repossessed if you do not keep up with repayments on your mortgage.