How Coronavirus may affect your mortgage

With so much uncertainty right now, it is easy to see why so many people would prefer to hold off from making major decisions until there is more clarity. However, in some cases, there is no time to waste as some people need to shop the market to find a renewal deal.

Given the importance of your home, and with many people suffering financial hardship due to lockdown measures, mortgages are a crucial factor to consider. Both current homeowners and aspiring property owners have a lot of questions, and the issue of whether people should wait until after Coronavirus to arrange a better mortgage rate is a pertinent one.

People’s circumstances influence the best decision

As is often the case in the mortgage market, a person’s circumstances are the critical factor in deciding when it is best to act. For some applicants, now is the ideal time to apply for a mortgage. However, for others, it is best to wait and see how the market responds.

At the end of April 2020, there was an increase in the number of mortgages available on the market. At the start of the lockdown period, many lenders removed or severely limited the number of mortgages they offered to prospective clients.

There was a practical reason for this. Many lenders were operating with a reduced workforce, for various reasons. At the same time, lenders would have experienced significant growth in demand for remortgage solutions from existing clients, and there was a wave of people enquiring about and requesting mortgage payments holiday.

Given the new and increased workload in these areas and a reduced number of employees, it was logical that many mortgage lenders limited what they could offer to new applicants. When taking alongside the slowing down of the property market, it was a sensible move, albeit one which would have been frustrating for people looking to arrange a mortgage.

A change to mortgage products

On April 30th, there was an increase of 5.9% in mortgage products available on the market. This was the second consecutive week of mortgage product increases, with lenders regaining confidence in the market.

A notable example of companies getting back to previous levels is Nationwide, who resumed lending up to 85% mortgages to new customers in this period. Also, after previously announcing interim changes to their lending criteria, specialist mortgage lender Hodge said they had removed restrictions on their products.

Kevin Dunn is a Director at Furnley House[1], and he spoke at the end of April about mortgage products on offer; “Last week we thankfully saw the return to the market of some higher loan to value deals from some of the bigger lenders. Hopefully, this will have a ripple effect to give other lenders the confidence to return more products to the market too.”

If you are eager to enter the market, the fact that so many lenders are returning or offering more packages is a positive sign. However, if you like to have as much choice as possible, you might be advised to hold off for now. The increase in mortgage offers should continue, and by summer, there is hope would-be buyers will be well supported.

Standard variable rate mortgages

Of course, if you currently hold a Standard Variable Rate (SVR) mortgage, it might be sensible to switch now. With interest rates being low at the moment, and mortgage offers remaining in place for up to six months, there is no harm in seeing what your options are.

If you arrange a mortgage in the next few weeks, you can hold onto the offer and determine if the market changes or better mortgage offers materialise. If not, the initial mortgage offer you received will still be valid, allowing you to switch your mortgage.

Eleanor Williams is a financial expert at Moneyfacts**, and she said; “With the difference between the average two-year fixed mortgage rate and the average SVR standing at 2.45 per cent today, the benefit of switching to a new deal while rates are low is evident for those eligible and would protect these customers from interest rate volatility in the future”.

How long are interest rates guaranteed for?

In the second half of 2019, the Monetary Policy Committee, the MPC, indicated that interest rates in the country are likely to remain low for longer. Brexit and trade concerns were cited as the driving factors behind this belief, and of course, there has been a further economic shock with the coronavirus outbreak.

Since March 19th 2020, the interest rate has been set at 0.1%. This reduction came quickly after a reduction to 0.25%. The swift secondary reduction is evidence we are living in challenging times, and the interest rate is at a record low.

With matters changing quickly, it would be unwise to predict how long interest rates will remain constant for. However, even if the Bank of England was to increase interest rates, it is likely they would remain relatively low. The base rate has been below 1% for more than ten years.

I am due for renewal soon, should I be worried?

While any sort of change or uncertainty can be unwelcome, especially when it comes to your mortgage, there is no reason to be overly concerned if you are due to renew your mortgage soon.

Lenders have been prioritising current customers looking to arrange a payment holiday, and mortgage holders looking to remortgage, over prospective buyers looking to organise their first mortgage. This stance should ensure you can connect with your lender and work together to find a suitable mortgage.

Also, with more mortgage products returning to the market as each week passes, there will be a more significant amount of choice to consider. Anyone who currently holds a fixed-rate mortgage should review their options and the expiry date, as switching to an SVR could cost them a good amount in monthly mortgage payments.

Amir Goshtai is a Managing Director at Experian Marketplace***, and he explained the opportunity on offer to those looking to remortgage. Amir said; “The fact that lenders still remain open for business for remortgages presents a real opportunity for homeowners to take advantage of low rates and make a typical saving of more than £3,000.”

Where can I get advice on my mortgage options?

The Money Hub is an FCA authorised mortgage broker able to provide you with advice on your mortgage options. To speak to a member of our helpful team, please get in touch.

Sources

[1] https://www.ftadviser.com/mortgages/2020/04/30/rise-in-mortgage-products-cause-for-optimism/

** https://www.thisismoney.co.uk/money/mortgageshome/article-8195895/The-best-mortgage-rates-coronavirus-crisis-cull.html*** https://www.moneyage.co.uk/uk-mortgage-holders-could-save-over-5000-by-switching.php


DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.