The coronavirus pandemic has thrown the property market, and therefore the mortgage market, into confusion. But the easing of lockdown restrictions should mean that things start to stir a little.
Here, in this Question and Answer column, Mark Grayshan tries to provide some clarity.
Q: How do you see the mortgage market at the moment, Mark?
A: When the pandemic started lenders were reluctant to lend at all and if they were lending it was for people with large deposits. This was because valuers weren’t doing physical valuations and the only option was to do desktop or automated valuations. Even then, some lenders weren’t even doing those. Now that valuers are doing physical valuations again, lenders are increasing what we call the loan to value, meaning they are starting to lend again to those with smaller deposits.
This has got the housing market and consequently the mortgage market moving again in a positive way. At the same time, mortgages that were on hold are also moving again and going to completion as physical valuations return.
There have been reports of house prices falling. This might be localised and hopefully will only be temporary, as confidence in the market increases.
Q: Is it possible to buy a house at the moment?
A: Yes indeed and as a result of mortgage lenders providing more products with smaller deposits I have noticed a significant increase in activity again. This is borne out by estate agents saying they are busier than a few weeks ago.
Q: Who has the coronavirus hit most in terms of mortgages and why?
A: Those hardest hit have been people with only a small deposit. Thankfully, we are now seeing lenders return to offering mortgages for those with just, say, a 10% deposit.
It has also had an impact on what lenders think buyers will be able to afford when it comes to paying off their mortgage.
For example, some lenders are looking unfavourably on people who have taken a payment holiday.
Others are only taking into account your furlough salary, rather than your full salary, if you fall into that category. Many won’t take into account bonuses, commission or overtime. Some lenders will take the full basic salary if your employer is contributing the extra 20% though.
Q: What do you think is the best thing to do right now if you have a mortgage?
A: If you are on the standard variable rate then it is always good advice to look at protecting your payments and pay less per month by switching to a fixed rate product, be it two, three or five years. If you are coming to the end of a fixed rate period then you still have the option of switching to a new product with the same lender, especially if your financial situation has changed. It may prove more difficult to switch to a new lender with the changes in lenders’ criteria at the moment.
Q: What advice would you give to anyone thinking of buying their first house or moving home at the moment?
A: I understand that these are uncertain times and I have had calls from clients in this position. For first-time buyers, it might be worth building up a bigger deposit so that there are more mortgage offers available to them. Similarly, for those looking to move, again they might need a greater deposit to get a mortgage for the home they were looking for.
Q: What would you say to anyone who is thinking of switching mortgage to save money?
A: As long as you have sufficient equity in your property then it is always a good idea to either switch to a new deal with your current lender or look at getting a better deal with a new lender to save money rather than moving onto your current lender’s standard variable rate.
Q: I’m coming to the end of my fixed rate deal, what should I do?
A: It is worth looking at what your current lender is offering you to change to a new deal with them. Or you can look at getting a better deal with a new lender as long as there is sufficient equity in your property to make it affordable to switch.
Q: What do you see happening to the mortgage market in the next year or two?
A: This is the million dollar question and I wish I had a crystal ball to answer it! In the short term I think we will see lenders reduce the size of deposit so that will make it easier for people to buy. There will still be some uncertainty and house prices might fluctuate, as I mentioned earlier. But reports from removal companies suggest things are picking up, so it shouldn’t be long before things settle and we start to see signs of normality returning.
I would still suggest fixing your mortgage for a few years to iron out any fluctuations that uncertain times can bring.
Q: Is property still worth investing in?
A: Property has always been a long-term investment. As to whether house prices increase again strongly and how quickly, remains to be seen. That will be determined by how quickly we recover as a country economically and on the demand for property.