On The Mortgage & Protection Podcast, The Mortgage Store Director Mark Deane discusses how the Coronavirus epidemic has impacted the UK house buying market and what lenders are doing to adjust in unprecedented times.
Naturally, when you’re looking to purchase a new property, you generally purchase through an estate agent, perhaps you buy a new build property from a builder directly.
When you’re looking to select the right property, it involves a lot of interaction:
- Normally you view the property,
- You make sure it ticks all the boxes,
- You have your discussions,
- You have your negotiation with the estate agent,
- You hopefully put an offer in,
- The offer gets accepted,
- You put your mortgage application in and the lender values the property.
- The solicitor gets involved and you into exchange contracts generally.
So there’s a lot of interaction throughout the whole process.
Now with social distancing because of Coronavirus, that can’t happen.
So what’s happening is you’re unable to go out and visit properties, and quite rightly. The estate agent wants to make sure that they’re protecting their own team, the vendors (that’s the person that that’s selling you the property) potentially isn’t too keen on people coming around to view the property with the risks it potentially brings.
When a mortgage application does go in, or if it did go in, then, of course, a lender is unlikely to send the valuer out to view the property because again, that brings personal risk to the surveyor as well.
All of these things are going to make the whole process of buying a house very, very difficult.
The Lenders’ Other Priorities
The lenders, under government guidance and some under their own initiative, are offering the mortgage payment holidays, as it stands they are up to three months.
So a lot of their time and a lot of their personnel are spending time dealing with customer queries and issues relating to these payment holidays.
What you’ll also find is that because what’s happened is so unique we haven’t had anything like this ever within the mortgage market, the systems that they have in place aren’t necessarily in place to deal with this kind of crisis.
So a lot of lenders have had to focus their attention and their time on reintroducing new systems that can deal with this new set of challenges, as well as stepping back and having to look at their criteria.
So, whereas historically, they might have been prepared, quite comfortably, to lend at 90% of the purchase price, or even 95% of the purchase price, without the ability to go out and physically view those properties, now, they’re taking quite a risk in being prepared to lend at that sort of level of borrowing against a property that they haven’t even been out to see.
The first thing they’ve done is obviously step back from those higher loan to values (LTVs), as they’re called, and set those somewhere comfortably where they can perhaps do valuations remotely using automated valuation models, which is an AVM as it’s known or desktop valuations. This is where they value a property based on similar types of property and the track record at what they’ve sold for historically. 70-75% LTV, even 80%, with some lenders sits quite comfortably in that sort of space, but anything above that, with the exception, you’ll find that most lenders are very hesitant to make a formal mortgage offer without going out and viewing a property in the flesh.
They have got themselves in a place where they can obviously focus on remote business as well. So there are opportunities out there for homeowners to make sure that they are benefiting from currently lower interest rates, generally speaking, but certainly, as far as taking new borrowing on from purchases, that’s not really a lenders priority or an obvious priority at the moment.
That being said, there’s a lot going on in the background that suggests to us as mortgage advisers, that they are very keen to get back into the new lending space as soon as possible. We’re receiving regular updates on what lenders are trying to do moving forward.
Furloughed Income And Borrowing
A number of lenders have confirmed the fact that they will use furloughed income for an affordability assessment, but they will max the borrowing based on the 80% type of income which obviously mirrors the furloughed level provided by the government. Some lenders won’t take account of commission earnings or overtime earnings on top of that, whereas historically they would have done under normal criteria. That being said, there are still two or three lenders that will take the furloughed income plus any bonus payments commission payments that are still owed to the furloughed member of staff.
Interestingly, we saw from one particular lender they have adopted the use of furloughed income rather than the post-return income and they will also exclude any overtime unless that individual is a member of the NHS staff. So what they’re basically saying is that because the market is so unpredictable at the moment, for anybody that earns commissions or bonuses, that will be excluded whether they’re furloughed or not. Unless, of course, they are an NHS member of staff in which case, over time it will be utilised for lending purposes. There’s some interesting takes on on the current situation from the lending fraternity at the moment
The Government’s Stance On Moving Home
The government’s stance on moving home is you shouldn’t move home unless it’s an essential move, where you’re contracted to move within a specific timeframe or where literally you have no option but to move. They’re basically saying don’t move unless you really have to, the solicitors, the conveyancers and so on, have been advised by their regulatory bodies to not actively discourage people from moving, but certainly not to encourage it at this current time until the short term future becomes clearer.
It just reaffirms the message at the moment, everybody’s saying, look, just take a step back. Don’t rush, don’t feel pressured to move if you’re not in a position to do so or you’re not prepared to do so.
If we look at the new build market, for example, certainly the builders we work closely with are being very flexible. They have naturally stopped building with immediate effect, because of the risks that potentially throws on their site staff. For all intents and purposes, they have no product to sell in three to six months.
Everybody’s taking that realistic view, it will come back. But for now, let’s just take our time. Let’s proceed as when we feel comfortable to do so.
Is there any kind of light at the end of the tunnel?
The purchase market is incredibly important to not just the lending fraternity but to the government and to the country in general.
We’re having conversations on a regular basis with lenders who are suggesting moves they’re making to try and get back into the purchase market as soon as possible.
One example of that is there’s a large valuation firm within the UK that does a lot of work for the mainstream lenders. Historically, they’ve been unable to carry out anything but an on-site valuation. They announced yesterday that within the next two weeks that they should have a new online system that will allow valuations to take place remotely and they will be on the panel of 14 mainstream lenders.
We do also have lenders out there that are still lending at 85% even 90% on new purchases using an online valuation tool, the only thing to stress is that the criteria surrounding that sort of borrowing is quite restrictive at the moment.
It won’t be like that forever, more and more lenders want to get back into this space as quickly as possible.
The House Builders Federation are in discussions with the government looking to extend the Help to Buy scheme which is due to come to an end and actually extend that by further 12 months. These are only early discussions at the moment but that would give people an opportunity to utilise schemes in the new build space to help boost the purchase market as quickly as possible. So things are changing quite quickly.
It’s a bit of a foregone conclusion that we’re likely to be locked down for an extended period of time. That being said, each week that goes by we’re seeing new things coming out via the lenders that help not just the mortgage market, but start to help the purchase market as well.
We think it’s only a matter of time before we’ll see some definite improvements.
