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Thursday 13th August 2020

Coronavirus and residential mortgages, your questions answered.

As lockdown restrictions ease and people want to take advantage of the Stamp Duty Holiday, we are seeing more activity in the housing market. However, there is still a lot of uncertainty, particularly over mortgage availability. On the one hand, interest rates are at an all-time low. On the other, lenders have reduced the number and range of mortgages they offer. If you are thinking about moving home or remortgaging, you may be wondering how this could affect you.

Here, we cut through the confusion and answer some of your questions.

Will I still be able to get a mortgage?
Since the pandemic, lenders have generally become more cautious and risk adverse. Most have now withdrawn their low deposit mortgage deals from the market, so you may struggle to find a suitable mortgage if you do not have sufficient savings.

Specialist lenders have also reduced the number and type of mortgage products they offer, which will affect non-conventional borrowers. For example, if you are self-employed, finding a suitable mortgage may be more difficult than it was before the pandemic.

First Time Buyers - Nationwide changes its lending rules.
One of the UK’s biggest mortgage lenders has changed its rules on gifted deposits. Nationwide’s new rules limit the amount of help first-time buyers can receive as a gifted deposit from parents or other family members. Previously, providing their criteria was met, a gifted deposit could account for the whole deposit provided whereas Nationwide will now only allow a gifted deposit contribution of 25% of the overall deposit. The remaining 75% must come from your own savings. The changes only apply to 90% loan to value (ie borrowing 90% of the value of the property you are buying).

If you are struggling to find a large enough deposit, you may also want to consider Help To Buy. This Government backed scheme continues to be available and could allow you to borrow with a deposit as low as five per cent. However, bear in mind that this only applies to newbuild properties.

I am in the middle of buying a new house. What will happen to my existing mortgage offer?
It is important to know you will be able to afford to complete your purchase. If you are buying with the help of a mortgage, you need to ensure your offer will still be valid when you expect to complete.

Most mortgage offers are valid for between six and twelve months, but this period will vary depending on your lender. Some lenders calculate the period from the time of your original application. Others from the date of their offer or by reference to the date you expect to complete. So, it is important to check.

The good news is that most lenders now have procedures in place for extending mortgage offers where completion is delayed due to coronavirus. Some lenders automatically extend offers made before a certain date, typically for three months. Others require an express application. In this case, you should apply before your existing offer expires, or you may not be able to extend it.

In any case, you and your conveyancer should keep your offer expiry date under review. Some dates that were automatically extended may expire in the near future, in which case you may need to contact your lender about a further extension. Most lenders will try to be flexible if approached in advance.

What will happen to my mortgage offer if my circumstances change?
You and your conveyancer must tell your lender about any changes relevant to your mortgage application. This includes any changes in your income or employment status, for example if you become furloughed or lose your job.

Both you and your lender need to be sure you will be able to keep up your mortgage repayments, and your lender will usually reserve the right to withdraw their offer, right up to completion if your circumstances change. If this happens, you will probably have abortive costs to pay. Worse, you could lose your deposit if you have already exchanged contracts.

Fortunately, this is very much a worst-case scenario and hardly ever happens in practice. Even if your circumstances change, most lenders will want to find a solution that works for both of you. For example, by reducing the amount you borrow or extending the mortgage term. The uncertainty caused by the pandemic has, however, increased the slight risk of an offer being withdrawn. It may be some time before the market settles down.

In the meantime, your conveyancer may suggest ways to cut this risk. For example, by including a provision in the purchase contract to let you withdraw if your lender withdraws your mortgage offer. Alternatively, she may recommend exchange and completion on the same day. That way, you do not become legally committed to buy until you know your mortgage advance is on its way.

Should I consider remortgaging now?
Now may not seem the obvious time to remortgage. However, interest rates are at an historic low, and some lenders have reported an increase in remortgage applications as borrowers look to reduce their monthly outgoings. For those with a relatively high proportion of equity in their homes, there may be some attractive deals out there. In any case, it makes sense to keep your borrowings under review. This is especially so if you are on a Fixed Rate or Tracker mortgage.

Any other tips for home buyers and borrowers in these uncertain times?
Choosing the right conveyancer is also important. Someone familiar with your lender’s requirements will help make the process smoother and avoid unnecessary bottlenecks. Most importantly, your conveyancer needs to be someone in whom you can have confidence. In these challenging times, this means someone who keeps abreast of all the latest legal developments and Government schemes, and who can think creatively. A conveyancer who really understands your individual needs can keep your transaction on track, even in a pandemic!

For further information about the issues discussed, or about buying or selling your home in general, please contact:
Peter Watkin, Head of Residential: 01392 209204.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.