Property and mortgages during the pandemic.
I get a lot of questions from clients about the effects the pandemic and the lockdown have on the property market and mortgage applications.
The property market is officially open but there are few things to remember when thinking of getting a mortgage. Many lenders have tightened their lending criteria and the changes sometimes happened with a day notice. There are significant delays in mortgage applications across the lenders and the time from application to offer increased to 21 days on average.
Here is a short guide to what to expect when applying for a mortgage
- Furlough – can people on furlough get a mortgage?
The short answer is it depends. Some lenders will be ok to lend to people on furlough some will need a letter from the employer that the employee is due to come back. But regardless, the income accepted into the calculation for affordability will most likely be solely the furlough income (not the full-time income). This can affect the affordability calculation as most of the furlough income will be 80% of a normal income.
- Self-employed – can I get a mortgage if I am self-employed?
During the pandemic and lockdown, the self-employed were severely affected. Even with the government help, Bounce Back Loans, and CIBLS, some businesses have not survived. With self-employed income fluctuating, many lenders have changed their lending criteria. Business owners whose businesses were affected due to lockdowns might experience trouble to secure the mortgage deal they need. While remortgage will still be possible, first-time buyers might not be so lucky. Many lenders will increase deposit requirements, therefore reducing the LTV available to self-employed. Some will not accept the previous year income when the business thrived but was badly affected by the lockdown. There are still options on the market for the self-employed to get their mortgage but be prepared to produce income proof and detailed accounts. Please remember that the BBL and CBILS loans are not acceptable as a deposit for residential property.
- Additional income and bonuses for mortgage application.
This is another area that has seen changes due to the pandemic and lockdowns. Additional income would generally mean a second income, fluctuating bonuses or commission. While this used be easily acceptable for affordability calculations, now the lenders are more cautious. The second income would need to be held for at least 6 months, but typically 12 months and reported in P60, also needs to be sustainable. Lenders might need to see how this affect the childcare or if it is physically possible due to the travel. Bonuses might be accepted but again will need to be proven that they are not on-offs. Some lenders will only accept 50% of annualised bonuses for affordability calculation so it might be better to negotiate a pay increase than rely on the bonus.
- Stamp duty holidays.
Stamp Duty holidays were announced in the summer of 2020 and reduced the amount of Stamp Duty Land Tax that buyers need to pay. The STLD is suspended on propertied up to £500k for first-time buyers, home movers and the buy to let, where for BTL the buyer will only need to pay 3% surcharge. The maximum saving can be £15,000 so it is worth considering. Due to the recent lockdown, there have been calls to extend the deadline for a few more months. At the moment the tax holidays end on the 31st of March 2021 and all transactions need to be finalised before this time to benefit from it.
- 90% LTV mortgages.
Recently we have seen a return of 90% mortgages. There are still not many deals available but this is a good sign that the lenders becoming more confident in the property market as a whole. There are many restrictions though, and some only available to employed applicants. There might have a longer-term – 5 years would be most likely and might have a higher interest rate but all things considered, this will allow many people to get on the property ladder sooner.
- House prices during pandemic.
With all the uncertainty around the property market, there are different expert opinions. The recent Nationwide house price index reveals the increase in UK house prices by 7.3% during 2020 and even though the prices are going up, some experts predict that 2021 will be a mixed year. The Stamp Duty holiday will drive the property prices up in the Q1 but after this, the demand might slow down. On the other side, during the lockdown, employers had to make provisions for those working from home and many realised that it is working well and changed their policy going forward. People might be looking for bigger properties further away knowing that they can work from home in the future, even after the lockdown and pandemic are over.