How the pandemic may affect your mortgage
There has been a lot of uncertainty as a result of COVID-19 pandemic and the lockdown. The government has been working hard to support different groups of people who might be struggling as a result of this unprecedented situation. Homeowners are being offered up to three months of mortgage payment holidays without any negative effect on their credit file. But what happens if your promotional mortgage rate is about to expire?
There are currently about 247 000 mortgages coming to the end of their fixed-rate term. If you are ready for a remortgage, your rate is likely to be moved to a higher rate unless a better remortgage deal can be found. With banks still closed or operating at lower capacity, and helplines full, what are some of the things you should know about when it comes to remortgaging during COVID 19?
At Fees Free Mortgages we always aim to support you with unbiased free mortgage advice based on your individual situation. In this blog post, we are going to provide you with information explaining how the coronavirus may have affected your mortgage, and how to prepare for a remortgage.
Should I remortgage during COVID 19?
You might have heard the recent announcements of the government restarting the UK’s housing market by slowly resuming operations and introducing in-person viewings. Despite some of the lockdown measures being loosened, the housing market may not get back to what it was pre-pandemic for a while.
Lockdown or not, you should still be thinking about remortgaging if your term is coming to an end. The Bank of England lowered the base rate to 0.1% in March, making it the lowest base rate in the Bank’s 325-year history. As a borrower, remortgaging to a more competitive deal at this time may save you a considerable amount of money, especially if you’re currently on your lender’s standard variable rate.
If the value of your house is currently a lot higher than your outstanding mortgage, you may even be able to release some of that ‘equity’ and boost your household finances.
Remortgaging during this time may seem daunting at first. Some of the things you should be asking yourself first are:
Is there an early repayment charge?
How much is it?
When does it apply until?
How much equity do you have and can you get a good deal? (the more equity you have, the better the mortgage rate; the lower the monthly repayments, the cheaper the remortgage)
How has your household’s financial situation changed as a result of the pandemic?
What’s your next project? Now is a great time to release equity in order to improve the value of your home.
With good advice and support from a mortgage broker, you can find a deal that helps you save money.
And what about my loan to value (LTV)?
Loan to value is the percentage of the property value that you are borrowing. For example, if you have £20,000 equity in a £100,000 home, you effectively have a 20% deposit, meaning you owe 80%. This means your LTV is equal to 80%.
Despite Coronavirus and the forecasted economic downturn banks are still lending! And many banks are lending up to 85% with a minority still offering 90% rates. This splits homeowners into two groups, those whose loan to value is <85% and those whose loan to value is >85%.
If you are in the <85% group, you’ll have access to the whole of the mortgage market. The golden time to review the mortgage is 3 months prior to the end of your promotional rate. With social distancing still in place, you might want to consider starting the process even 5 months in advance. This will allow a review of your scenario and a comparison of the market vs your existing lender options.
Quite often, mortgage lenders offer better rates for new customers, so it can be worth switching banks. Switching to a different bank much simpler than you think, and can be easily done with the help of Fees Free Mortgages.
Applying for a new mortgage with a new lender could be tricky if you’ve been furloughed. This is because some lenders will assess affordability based purely on your furloughed income (which is up to 20% lower than usual), and others might not consider it at all.
Remortgaging with your current lender, while furloughed may be more beneficial in some cases. Many mortgage lenders confirmed that existing customers remortgaging on a like-for-like basis, won’t need to undergo affordability assessments. This means there’ll be no negative effects for people who’ve been furloughed. You may only be restricted if you try to borrow more cash.
It is always worth instructing Fees Free Mortgages to check with your current lender, whether you’re currently furloughed or not, what kind of mortgage deal they’re willing to offer you. After all, they are making money on you, so it is in their interest to keep you as a customer.
You will also have to assess your existing lender options if you find yourself in the >85% group. Most banks offer their existing customers options to remain with them, and these rates can be switched without the need for a full mortgage application, valuation or legal work. If the remortgage rate is lower than your current rate, you can even switch to the new rate up to 3 months ahead of the expiry.
Everyone’s financial situation will vary and that’s why working with a fee-free mortgage broker can help you make the right decision and get the best mortgage deal in the situation you’re in at the moment, without any extra cost for you. And if you’ve remortgaged before, don’t assume the decisions you made last time will still yield the same results. Your credit history may look different and the market has also changed drastically in the last couple of months.
Should I remortgage during COVID 19?
As you may be aware, physical valuations were completely on hold during the lockdown. Luckily, most banks can complete desktop valuations. This is where indexed property valuations are checked alongside recent sold prices. Desktop valuations are not a new thing, some of the larger lenders such as Barclays, Santander, Halifax, and Nationwide have been doing automated valuations for some time. Unfortunately, if you are buying a new build property, the valuation is likely to be delayed until a surveyor can access the new build site safely. With the slow restart of the housing market, this might soon be possible again.
The rush for homeowners to request a mortgage holiday has passed now. Banks had to pull staff from other areas to answer calls from existing borrowers which meant slower processing times. Thankfully, service levels are now back to pre-crisis standards with the average time from application to mortgage offer at between 7-10 days.
It is more important than ever to use a mortgage broker?
It can be a scary prospect ensuring that you are going to get the best mortgage deal for your situation. Working with a fee-free mortgage broker ensures that you will get the lowest mortgage rates and incentives offered by lenders with no extra cost. Mortgage brokers submit the mortgage application on your behalf whilst seeing the application through to completion. Their extensive knowledge means they will know exactly which lenders can carry out full desktop valuations, which is still likely to be a preferred option until we are back to ‘business as usual’.
Rather than sticking with your existing mortgage rate, and spending the next 2, 3 or 5 years wondering if you could have gotten a better mortgage deal elsewhere, speak to a qualified broker from an authorised firm. Fees Free Mortgages are directly authorised by the Financial Conduct Authority, and our advice is protected by the Financial Services Compensation Scheme.
You will benefit from our completely independent status too, ensuring that you get the very best option for you and your current situation.
In a nutshell
The pandemic shook up the housing market in a way that we have not witnessed before. With lockdown and sudden redundancies, many people’s finances became less secure and brought to light the need to cut costs wherever possible. Securing the right remortgage deal could help you do just that.
If you would like to speak to our mortgage advisors to see what you could do now to ensure you’re getting the best mortgage rate, simply request a callback.