It’s almost been half a year since the coronavirus pandemic put the property market on ice – so what have been the biggest borrowing changes in the UK?
During May and June as restrictions were eased across the UK, the property market began to thaw and a surge of buyers and sellers were eager to progress with their move. However, during these unprecedented times, numerous factors such as Government intervention, lender influence and an economic hardship have created a shift in the mortgage market.
With few businesses remaining untouched by lockdown, a large number of employees across a range of sectors have been furloughed or will be impacted by the new tiering structures and local lockdowns. Mortgage lenders have therefore had to adopt new affordability criteria for affected applicants which could impact the number of people able to proceed with a mortgage application.
For example, some lenders will now only accept the reduced furlough salary as an income; others will stipulate that more information is provided before calculating how much can be borrowed, and some lenders will not count furloughed income at all in their affordability assessments. Applications from those receiving financial aid on the new tiering structures are likely to be impacted in a similar way.
As the furlough scheme ended in October and new tier structures in different regions impact on businesses’ ability to operate, there is a higher risk of unemployment for some, and so lenders may be forced to tighten their policies accordingly, to offset this risk.
If you're unsure, you should speak to your individual lender about how a change in circumstances could impact on your personal mortgage application.
Mortgage payment holidays
The introduction of mortgage payment holidays by most lenders was designed to help counteract the financial pinch during lockdown, giving people the flexibility to either reduce monthly payments or pause them completely for up to three months.
Like any holiday, it must be paid for eventually and your lender may recalculate your repayment amounts or extend your mortgage term to cover the loan payable during the deferred period.
Stamp Duty and reduced availability of low deposit mortgages
The Stamp Duty changes in England and Land Transaction Tax across Scotland and Wales have had a buoyant effect on the housing market, giving buyers the confidence to start looking again after putting their plans on hold.
Stamp Duty changes also help offset another challenge faced by the budding buyer – the reduced availability of high loan-to-value mortgages. Lenders remain cautious in post-lockdown Britain with the removal/heavily-reduced stock of 90-95% mortgages. This means borrowers have to save up for larger deposits for a chance of getting on to the property ladder.
Fortunately, with the threshold changes for Stamp Duty and Land Transaction Tax, buyers can put these savings towards the deposit, making an 80-85% loan to value home more affordable.
Changes to application process
Branch closures and lockdown has resulted in some changes to the application process. Borrowers are now seeing a lot more flexibility in how they apply for their mortgage, with a great deal of appointments being conducted over phone or video and the ability to electronically sign and scan the necessary paperwork.
As this situation has never occurred before, there are no guidelines or takeaways from past occurrences to predict the outcome. This means there is a host of opinion on what house prices and mortgage rates will do in the future over the course of the next few months and longer term.
A lot of the borrowing what-ifs will depend on the pandemic progression, political factors and its continuing impact on the economy, all of which is beyond our immediate control. However - with so much change to the mortgage market over the last six months, speaking to a professional to help you navigate through this uncertainty is more important than ever.