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How has Covid-19 changed the lending market?

On the 23rd March 2020 all of our lives changed. The government announced a lockdown ordering shops, pubs, restaurants and any other non-essential businesses to close. We had to work and stay at home where possible in order to stop the spread of Covid-19. The government also introduced a furlough scheme which would pay up to 80% of wages if the employer could not keep staff on due to any downturn of business. They later rolled this scheme out to the self-employed although not covering dividend payments for directors of limited companies.

Like most other businesses in the country, these changes have also impacted the lending market and these are the two primary reason why:

Valuations

If you want to move property or remortgage to a new lender, a valuation of the property will need to be fulfilled. The lender needs to know that the property is worth the amount it is being purchased or remortgaged for to ensure their security is safe and that the correct interest rate is being charged for the level of risk (the higher the equity or deposit, the lower the interest rate and vice versa).  There are two types of valuation available: a physical valuation and a desktop valuation.  A physical valuation requires a surveyor to physically go and inspect a property and then write an appropriate report for that property which will also contain its value.  A desktop valuation is undertaken with limited or indirectly sourced information allowing the surveyor to give a reasonable opinion of the property’s value.

Due to lockdown restrictions physical valuations could longer be carried out and lenders started to withdraw certain products from the market.  Some lenders withdrew products above 60% loan to value (40% deposit or equity would be needed in order for them to lend), however in most instances it was more like 75% loan to value.  Some lenders also adjusted their affordability calculators to reflect this indicating they would lend a much lower amount than may be expected in normal circumstances.  The reason for this is that they were willing to instruct and lend based on a desktop valuation as long as there was enough security in that property for the lender.  The lenders individual risk threshold would depend on how high the loan to value could be to accept a desktop valuation.  The products that fell outside of these risk thresholds were simply withdrawn.

Furlough Scheme

The word furlough is surely going to be a contender for the word of the year 2020! A word I had not been familiar with until March of this year but one I am now fully acquainted with.  I believe it took the lenders a little while to decide on how this would affect a client’s application, however (and I am generalising) most lenders that I am aware of will only take the furloughed wage into account when determining affordability.  If self-employed, they will want to know if and how the lock down has impaired business.  If the applicant states that the current lockdown has not influenced the level of business and income but (for example) is a self-employed taxi driver then it is likely to be questioned during assessment. The underwriters will make a lending decision based on your current circumstances and not what they were before lockdown. 

What is the current state of play?

The lockdown measures have started to be eased and we can only hope that a yoyo effect will not occur enforcing a full lockdown again.  As of the 18th May 2020, physical valuations were able to be instructed.  There is a huge backlog of valuations that need to be completed, these are for cases that were placed just before the products had been withdrawn or if the desktop valuation was insufficient and a physical valuation was still required.  As the surveyors have started to catch up on their backlog, the lenders have slowly started to release higher loan to value products.  However, we are still not yet back to normal as there are very few 90% and 95% loan to value products available and most of the specialist and adverse lenders have not got the full range of products they had available before lockdown, certainly the riskier tiers (previously available for clients with higher amounts of adverse credit in the background) don’t seem to have reappeared yet.  It is my opinion that lenders are waiting for the surveyors to catch up on the backlog of valuations before overwhelming them with more work by releasing too many products too quickly.  They may also want to see how the country responds to the recession we are likely to face in the coming weeks and months.  The recession of 2008 still lives fresh in their minds and current regulations and penalties are in force for overly risky lending.

Can I apply for a mortgage now?

The housing market seems to have bounced back really well from what I can gauge from my own enquiries and local estate agents.  There is still a great deal of mortgage options available, however, if you have a 5% or 10% deposit / equity then the range of products available are still drastically lower than what they once were before lockdown.  The same applies if you are looking for adverse credit products.  I also think you might be wise to wait until you are on a full wage if currently furloughed on a reduced wage but rely on your full pay packet to obtain the required lend. 

Having said this, if the above situation applies it should not stop you from starting the conversation.  This is an incredibly fast-moving situation and more products are being introduced almost daily along with various changes in criteria.  Please talk to a broker who will be able to advise on the current situation and your current options and at least advise you on a road map going forward. 

Approval Number: Sol8917

Expiry Date: 26/05/2021

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