With the outbreak of Covid-19 and the Coronavirus pandemic the UK Government has taken unprecedented action to ensure the population combats the virus’ spread. The financial support packages that chancellor Rishi Sunak has implemented affect people in a variety of different ways (depending on their employment status).
We understand that this can be a confusing time for many, especially where your mortgage is concerned, so we have produced the following information to help support our customers.
Covid-19 Mortgage FAQs
These are a selection of questions we are being asked at the present time. We can’t cover every question that may be asked, so if your question doesn’t appear, feel free to call or drop us a line.
Do I need to tell my mortgage lender that I have been furloughed?
No, you don’t, if you can carry on making your normal mortgage payment, they don’t need to know. However, if you are struggling to meet your payments, you should speak to them about a payment holiday.
How do I apply for a payment holiday?
Every lender has a different process. Some are easier than others. I would recommend you look on the lender’s website and there should be clear guidance on how to apply. If you are struggling with this process, please feel free to contact us.
How does taking a payment holiday affect me?
Please view our payment holiday section for this information. There are a lot of things to consider.
I was going to complete on my purchase, but the lock down was imposed. Can I still complete after this is over, on the current offer terms?
Yes, you should be able to carry on as before as most lenders are extending mortgage offers by 3 months. However, due to the many financial changes people are experiencing, it is likely that before completion that lenders will ask you if you have had any “material changes” to your circumstances. This will include if you have been furloughed. If you have, they may look at recalculating your affordability on the lower income, so please contact us for guidance.
I have a mortgage offer but have now been furloughed. Will this make a difference to me?
As above, you will need to advise the lender of any “material changes”.
I was hoping to get on the property ladder/looking to move-house. is it still worth doing so?
Yes, it’s still a good time to look at your mortgage options ahead of looking at properties. This will then put you in a better position when the market opens up again. At least you will know what you can borrow, what deposit you’ll need and the likely costs/budgeting you will need to allow for. I should point out that deposit requirements are now larger than they were before Covid 19, as Mortgage Lenders are unable to undertake “physical” property valuations at the present time. You are therefore looking at needing a deposit of 15%, or more, at the current time.
Can I still get an Approval in Principle (AIP)?
In theory yes, we can still look at this for you, however, its probably worth looking at your credit report first, which you can obtain here:
We will then assess your options ready for AIP. We prefer not to obtain an AIP when you haven’t found a property, as an AiP can often expire before you find a suitable property.
Can I claim on my redundancy cover if I have been furloughed?
The answer is no. You can only claim on this cover if you have been made fully redundant and meet the eligibility criteria.
Is it a good time to remortgage, by reviewing our existing mortgage?
Yes, it is, subject to your personal situation and your current mortgage arrangements. There are still plenty of products available and some great rates of interest. However, you must meet the changes in criteria that many Lenders have introduced in recent weeks. Further details are here.
Could I remortgage now to add any unsecured debts to my mortgage and reduce my outgoings?
This could be a viable option; however, we would need to review all of your options and to ensure that you don’t pay more interest over the term of your mortgage debt by adding currently unsecured debt to your property.
Can you still arrange Lifetime Mortgages? (Equity release)
Yes, lenders are currently making adjustments to their lending procedures and legal requirements to help this process. Products are still available with most lenders.
Can I take payment holidays on my credit cards/loans?
Please speak to your providers to ask the question. Most are amenable to making changes or taking reduced payments, but it is imperative that you get any reduced payment agreed “in advance” and don’t just miss payments.
Should I cancel my current life insurance policies?
Most definitely not. This is the time that you may need them. We have been advised by some providers that they may also allow payment holidays, but this in the early stages of discussions and many providers have this “under review”.
Changes in lending criteria
Changes are happening not just daily but almost hourly so this information may well change. However, a few things to point out.
- Lenders have had to significantly change their underwriting criteria. This is mainly as physical valuations can’t take place. They have reverted to “desk-top” valuations. Whilst this will help keep part of the market moving, they have imposed a maximum LTV (loan to value) to ensure that there’s a margin for error.
- A “desk-top” valuation (also known as an AVM – Automated Valuation model) is based on local statistics, historical information, other data from the local area and recently “completed” property sales. These valuations, however, may not give the expected valuation of the homeowner and you need to be realistic with your property valuation expectation at the outset. If you have a unique property it will make it difficult to get an accurate valuation based upon this method of valuation.
- Each lender has their own maximum Loan to Value (LTV) criteria/limits, so I can’t add them all on here. However, we review this as part of any process we undertake with our clients.
- Lenders will allow furloughed income to be considered, but it will be at the amount being paid and not at the level of normal salary. This can significantly impact on borrowing capacity.
- Most lenders have stopped allowing the use of bonus/commission income for the foreseeable.
Payment holiday information
Payment holidays have been a feature of a large number of mortgage products for years. It will allow you, as the borrower – to take a short break of typically 1 – 3 months from your mortgage payments. Historically the lenders would only allow this break if you met certain criteria.
However, under the recent measures introduced by Rishi Sunak, all lenders will effectively be forced to offer payment holidays, however they’ll have some discretion on the full criteria surrounding the basis for the decision on granting a payment holiday, based on individual circumstances.
If you need to take a payment holiday, check the lender’s website to see their application guidance. Some have a simple form to complete and submit. Others will ask you to call to ensure they take you through a set process. Obviously, if you wish to discuss this with us first, please don’t hesitate to get in touch.
Historically, a payment holiday has shown on your credit profile in a negative way. However, it is worth noting that if you’re facing financial difficulties as a result of COVID-19 and you are granted/approved for a payment holiday by your Mortgage Lender, your credit rating won’t be affected.
How will a payment holiday work?
A payment holiday means that your mortgage payments will stop for the agreed period of time, however it’s important to point out that interest is still accruing on your mortgage over this period. As you won’t be paying this interest as part of your normal monthly payments, it’ll be added to your mortgage balance which will result in a larger overall debt for you to repay. You’ll also have to pay interest on the interest which has been accrued, over the remaining term of your mortgage. This can make payment holidays particularly costly in the long term, although in the current situation, it’s a lifeline that many will take advantage of and will find beneficial to take some financial pressure off their current circumstances.
When your payment holiday comes to an end, the lender will recalculate your mortgage payment to take account of your new mortgage balance. Your payments will increase post the “payment holiday” because your mortgage balance will have increased as interest hasn’t been paid during the holiday period and will be added to your mortgage balance. If you have a repayment mortgage, it’s important to point out that no capital will have been paid off during the payment holiday either, which will further increase your mortgage payments. Some lenders may consider extending the term of your mortgage, to allow you time to “catch up” with the payments missed. All lenders will take a differing approach with this, so it is worth exploring this with them, to understand your options when the payment holiday comes to an end.