Private Finance's Weekly Mortgage Memo - 3rd August 2020
This is our summary of news in the mortgage market over the last week that we thought was particularly interesting. Our views are often cited in several national publications, including; BBC News, The Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of key trade publications, so this should keep you ahead of the curve. If you have any questions on any of these stories, or would like further information, please do not hesitate to get in touch.
At a glance:
- Self-employed struggling to secure mortgages
- Significant rate increases for high loan-to-value (LTV) borrowers
- Return to 80% LTV for Limited Company buy-to-let mortgages
Self-employed struggling to secure mortgages
Lenders are putting applications from self-employed borrowers, including business owners such as Limited Company Directors, under increasing scrutiny in the wake of the economic uncertainty created by the Coronavirus crisis. Borrowers now need to provide evidence that they are back to pre-COVID levels of income (if that full income would be required for an application) and having to justify any COVID-related assistance, such as taking out Bounce Back loans or even furloughing staff.
- Some lenders have a two-day turnaround for an employed case and 12 days for self-employed! There is a lot of back and forth, a lot of justification and it is generally just difficult currently.
- This is hopefully short-term, but the question it raises is how will lenders respond in the long run? Self-employed applications are generally based on an average of income levels for the last two years, but if revenue for one year sharply falls due to disruption caused by the pandemic, self-employed borrowing power may be significantly impacted in the years to come.
- Moreover, lenders are so busy right now with pent demand being released post-lockdown and the raising of the Stamp Duty threshold causing a boom in enquiries that they can somewhat pick and choose with cases they progress.
Significant rate increases for high LTV borrowers
High LTV mortgages are becoming more expensive propositions. This week we have seen rate increases above 80% LTV from multiple lenders and, in a couple of cases, products withdrawn altogether. For example, Metrobank offer 90% LTV at 3.29% per annum on a fixed rate. However, dropping to 85% and going elsewhere reduces the rate to 1.89%. Effectively, increasing loans by 5% causes the interest costs to jump up to even 90% over the term (depending on the loan amount)!
- It is getting harder for higher LTV borrowers. At 90% LTV, rates are around the 3% mark or above (unless you meet specific criteria) – a high rate when you consider the best buy on a 2-year fixed at a lower LTV is 1.09%.
- This is indicative of both the uncertainty in the market, coupled with extremely high demand for borrowing in this bracket. If lenders do return to 95% LTV, rates could be eye-wateringly high.
Return to 80% LTV for Limited Company buy-to-let mortgages
Foundation Home Loans has just increased the LTV it will accept for Limited Company Buy-to-let mortgages, expanding options in this space. Other lenders will likely follow suit.
- While lenders are constantly changing criteria at present, it is very good timing on Foundation’s part. Landlords are already moving properties into Limited company structures, taking advantage of the Stamp Duty holiday. A competitive product at a higher LTV could generate significant business going forward.