A guide to the post-Covid lending landscape and how it affects you...
The economic fallout from the coronavirus and the ensuing lockdown measures is unprecedented in modern times. It makes the 2008 financial crisis look like a minor blip in terms of GDP statistics – with April seeing a 20.4% fall in output and the Bank of England predicting a 14% fall in GDP for 2020 as a whole. You need to look way back to 1706, when the country was impacted by the war of Spanish Succession and then the Great Frost, to find anything comparable in terms of a contraction in national output.
Right now, the figures as to the real scale of the economic impact are only just emerging. Given the protective measures the government has put in place for the economy - there are currently 9 million furloughed workers (over a quarter of the working adult population) and 2.6 million self-employed workers being supported, not forgetting the billions of pounds of funding for businesses - the true extent of the damage will only become apparent as support is gradually withdrawn.
With all this uncertainty lenders are of course wary and thus the mortgage market has become something of a minefield to navigate, even for our seasoned brokers. We wanted to provide our clients with information to understand this new landscape in order to ascertain what is possible for them at this time, so below is an overview of the current situation for all types of buyers and for all types of property and finance:
First-time buyers – High loan-to-value (LTV) lending (over 90%) is severely restricted with many lenders pulling out of the market and those remaining charging significantly higher rates.
Large loans – Many lenders have restricted maximum lending, and while this is easing somewhat it is still restricted compared to pre-Covid, although depending on your circumstances, with access to over 140 lenders there are a number of possibilities in this regard. Private banks and specialist institutions are starting to re-occupy the large loan market as they did in 2008.
Buy-to-let – 80% plus loan-to-value and specialist lenders hardest hit, although they are returning to the market slowly but surely. Multi-units blocks and HMOs now allowed again and there are low rate options available - including sub 2% 5-year fixed at up to 75% for non-specialist cases.
Bridging / development – Many of the smaller lenders have pulled out of market and are yet to return and others are restricting availability, however this is still possible depending on the property and your circumstances.
Commercial – Mainstream commercial lenders are currently very busy with CIBIL lending, which is arguably a more attractive proposition at this time as lenders would rather the government be liable for a loan than an individual.
Self-employed and controlling company directors – These types of clients are where the most grey areas appear as lenders want borrowers to prove that their businesses are sustainable in the long-term and want to know how they have been affected by the current crisis. We have seen those businesses that have furloughed workers or taken on CIBIL loans declined for debt on account of the fact this highlights to the lender that their business could be in difficulty. Borrowing is still possible but expect to have to provide business bank statements and evidence that the business is sustainable going forward.
Furloughed workers – The furlough scheme is beginning to wind down in August with employers required to begin making contributions to the wages of staff, however in the meantime lenders are accepting applications from furloughed workers, but they will only lend based on the maximum of 80% of a furloughed workers’ salary (unless the employer is topping it up) or £2,500 a month – lenders generally will not accept their actual salary under contract.
Mortgage holiday takers - The term ‘holiday’ is arguably not how it should have been phrased or framed at all and whilst they provided a lifeline for a large number of people in financial hardship they do have an effect on your future ability to borrow in the short-term despite not impacting your credit score, as in effect you announced to your bank or lender that you could not afford to pay your current mortgage.
Credit ‘blips’ and outside of criteria cases – Lenders haven’t outwardly changed criteria, but we have seen a number of cases where minor blips on credit reports have led to rejection, however this is applicable to more unusual cases (property, applicant or income) that are traditionally much harder to place even pre-Covid.
Low loan-to-value, remortgages and product transfers – despite all the bad news and complexity outlined above, the mortgage market is currently operating a ‘to those who have more shall be given model’. For some borrowers, especially those with higher deposits (>25%) or equity in existing properties, now has never been a better time to take out a mortgage or to remortgage as they are set to benefit from huge rate cuts as lenders compete for lower risk business at lower loan-to-value ratios.
Now has never been a more important time for borrowers to seek independent advice when it comes to mortgages or any type of property finance. Whilst there are increased complexities at this time, with access to over 140 lenders and a team of expert consultants, we can help you find the best solutions possible.