Ladies and Gentlemen.
If you had been thinking about moving, re-mortgaging, consolidating or anything property finance related, you may be concerned about the mortgage market and the effect Covid-19 is having. You may have heard that lenders are temporarily closing their doors to new business?
Let me assure you that this may be the case with some lenders but not all. Lenders are reacting to a difficult situation and keeping abreast of changes, which can be rapid, is quite difficult. There are many reasons why they must make what can seem harsh decisions, and I will try and explain some of them.
Prime or High Street Lenders
Applications to a number of lenders at higher loan to values (LTV) are impaired due to the government’s stance with regard to Covid-19 and rightly so. One of the major factors is that social distancing rules prohibit surveyors/valuers being able to conduct internal inspections of properties. This increases the risk for lenders as they may not get as thorough an opinion on the condition of the property as they would like, thus increasing their risk and weakening their security. I.e. the property being offered in lieu of a mortgage advance being granted is not worth as much as someone thought.
Applications up to 80/85% LTV may be impaired, but some may still be able to proceed as a few lenders have adjusted their criteria for how they conduct valuations.
Limits for Automatic Valuation Models/Desktop valuations, which do not require a personal visit by a valuer, have been reviewed upwards by some lenders allowing loans to continue to be arranged. The limits will, of course, vary from lender to lender but does go some way to keeping the market moving.
Secondary or Specialist Lenders
Next, we have the Secondary Lender market, which is sometimes referred to as the Specialist Mortgage market and typically services those who might have a less than perfect credit history. Lending here has slowed, and this is because they have either reduced their lending limits to circa 60% LTV in some cases or stopped lending altogether. This is temporary as far as we and they are concerned but may have more far reaching consequences. The funding lines for some of these lenders is by way of Capital Markets which have taken an enormous hit due to stock market behaviour and how long it will take to recover is unclear, as Covid-19 continues to disrupt.
Another issue for these lenders is that they must adhere to capital adequacy rules, should they have a banking licence, which is a measurement of a bank's available capital expressed as a percentage of a bank's risk-weighted credit exposures. In light of the Government’s enforcement of payment holidays upon lenders to help people avoid hardship, caused by Covid-19, this may directly impact their ability to meet those standards, if they don’t take action to limit it. Deciding to stay out of the market and set about the task of helping their existing customers, especially in their hour of need is for some the best way forward. .
This will be important to them as they may not have the capitalisation of the likes of the High Street Lenders and so best to maintain what they have, comply with standards and not add anymore risk into the mix.
However, like the primary market not every specialist lender is affected, some are still able to lend, and we are still placing business with them. It is also quite difficult to gauge as the picture changes daily as lenders move in and out of the market as their funding lines change.
To fully understand the regulators stance on payment holidays, click here to read the relevant FCA webpage.
I hope this adds a little clarity to the picture and rest assured we are here to help, and we are still managing to move forward with a lot of customers.