Need to remortgage? Those who bought a home with a small deposit could face steeper bills as lenders pull up the drawbridge
- More than 1,500 mortgage deals have been pulled in the past three weeks
- Many of the high street banks are restricting loan-to-values to just 60 per cent
- There are still options if you need to remortgage but it’s likely you’ll need to stay with your existing lender or find a mortgage broker who can help
Homeowners who bought with a small deposit and are now nearing the end of their fixed or tracker rate deal could find themselves forced onto a higher interest rate, pushing monthly payments up significantly.
Most lenders say they will honour the Government promise to offer homeowners struggling financially due to coronavirus a mortgage payment holiday of up to three months.
But there remain questions about what happens for those who need to remortgage in the next few months, but no longer meet bank and building societies’ standards following a ruthless culling of deals for those with less than 40 per cent equity in their homes.
Many homeowners who bought with a small deposit in 2018 will need to remortgage soon
In the past week, Halifax, Barclays, Nationwide Building Society and Santander have restricted new mortgage lending and in many cases will only accept new customers looking to remortgage who have a large amount of equity in their homes.
Earlier this week, Atom Bank pulled all purchase mortgages until further notice – but said it will be offering remortgages from next week – while Virgin Money suspended all new mortgage applications and capped remortgages to 60 per cent loan-to-value.
Many smaller lenders, particularly those which offered loans to the self-employed, older and retired borrowers and those who have suffered financial difficulties in the past, have suspended new lending altogether.
It means on the whole, homeowners with 20 per cent equity in their homes or less will have drastically fewer options should they need to remortgage in the next few months.
Why are mortgages being pulled?
Banks and building societies say that they have scrapped a large part of their mortgage ranges in order to focus on existing customers who need them most, as they have been swamped with requests for mortgage holidays.
Combined with lenders’ staff having to work from home – and many being off ill – this has left them struggling to cope with demand.
There is also another factor at play. Amid the coronavirus lockdown, the Government effectively told people to abandon home moves, putting thousands of property purchases on ice.
In Scotland, the Land Register has closed preventing home sales there entirely, while elsewhere across the UK surveyors have been instructed not to visit properties to value them.
It has sparked major worries for mortgage lenders, many of which have responded by pulling all home loans above 60 per cent loan-to-value or suspending new lending altogether.
Property listings site Zoopla has estimated that the number of house sales could plummet by as much as 60 per cent over the next three months, compared with the second quarter of 2019.
Prices, the company claims, should remain relatively stable in the short term though it’s easy to see why lenders would be nervy about house prices falling.
All lenders are reporting that valuers are unable to conduct physical inspections of properties as occupants self-isolate, making it harder for many lenders to approve mortgages for new customers or new properties – even where it’s a remortgage.
Experts suggest this is another reason lenders are restricting the availability of mortgages – their ability to serve new customers is simply insufficient because of the coronavirus lockdown.
What are your remortgage options?
If you have less than 20 per cent equity in your home and your mortgage lender is still active – as all of the big banks and building societies are currently – you should be able to remortgage with your existing provider through what is known as a product transfer.
This means you will not have to go through new checks to see whether you pass the lender’s affordability standards and no new valuation is needed to approve the remortgage request.
If you have more equity in your home, you may be able to remortgage to another lender depending on their valuation rules.
Some lenders are accepting online valuations that can be sense-checked by a chartered surveyor based on their knowledge of a local area.
Typically this is just for straight remortgages where you’re borrowing the same amount you currently owe.
Those who want to borrow a bit more, known as taking a further advance, will struggle to do this at the moment.
If you are with a mortgage lender that has suspended all new lending and your fix or tracker period is coming to an end soon, you may encounter more difficulty.
It’s likely that you’ll be able to do a straight product transfer, even where you have a small deposit, but it will depend on how your lender is funded.
Several smaller mortgage lenders are funded by big investment and retail banks as well as private equity and hedge fund money.
Many have seen these funding lines pulled in the past three weeks, which is often why they are forced to withdraw from the market.
What should you do now?
The advice is very clear: if you are worried you may not be able to remortgage with your existing lender, get in touch with your mortgage broker as soon as possible.
Mortgage lenders are constantly chopping and changing their criteria and it’s impossible to keep up with the details unless you’re an expert.
Moneyfacts data meanwhile shows that 1,585 mortgage deals have been axed by lenders since 11 March 2020.
There is a handful of lenders still offering mortgages for those with less than 10 per cent equity, though many are only available through a mortgage broker, have limited funds or restrict who can borrow based on location.
According to mortgage data business Twenty7Tec this includes: AIB, Al Rayan Bank, Buckinghamshire, Chelsea, Chorley, Furness, Hanley Economic, Loughborough, Newcastle and Scottish building societies.
First Direct and HSBC will go up to 90 per cent but tend to demand good credit scores.
Do not request a payment holiday… yet
This is really critical – lenders are already struggling to deal with the volume of customers asking for mortgage payment holidays.
However, the way that they process this using their systems means you won’t be able to remortgage to a new rate while your mortgage payments are suspended.
If you need a payment holiday and you need to remortgage, speak to your broker or lender first.
Usually, you’ll be told to remortgage first and then request a payment holiday once you’re safely on the new rate.
Experian, Equifax and TransUnion have all now confirmed that consumer credit scores will be protected if you need to take an emergency mortgage payment holiday because of coronavirus.
What if you can’t remortgage?
It’s likely that the vast majority of borrowers who need to remortgage will, at the very least, be able to do a product transfer with their existing lender – even if it’s not onto the cheapest rate in the market.
Those who cannot will be transferred to their lender’s standard variable rate.
According to Moneyfacts, the average variable rate is now 4.76 per cent, compared to the average two-year fixed rate of 2.37 per cent and the average five-year fixed rate of 2.68 per cent.
Repayments on a typical £160,000 mortgage over 25 years would jump to £913 a month from £707.36 on the average two-year rate, and £732.38 on the average five-year rate – leaving borrowers an extra £200 a month to find.
There are ways to reduce your monthly payments however, and most lenders should be willing to discuss these with you.
They include extending the term of your loan, which will cost more in interest overall but can reduce monthly outgoings in the short term, switching to part or full interest-only for a period and taking a temporary payment holiday.
The key message is to talk to your lender and a mortgage broker as early as possible.
Mortgage restrictions round-up
From Tuesday this week, Nationwide Building Society no longer offered mortgages to customers with less than 25 per cent equity in their homes or to put down as a deposit.
This new threshold also applies for landlords who have mortgages with Nationwide’s buy-to-let arm, The Mortgage Works.
Existing offers will be honoured with offers valid for an extra three months where the offer is due to expire within 30 days.
Last week Halifax and its intermediary brands withdrew all mortgages above 60 per cent LTV, but on Tuesday reintroduced a handful of options for homeowners needing to borrow up to 80 per cent loan-to-value.
HSBC has made no changes to its mortgage range as yet while Santanderhas reintroduced mortgages up to 75 per cent loan-to-value.
Last week Barclays restricted all new mortgages to a maximum of 60 per cent loan-to-value.
So-called ‘non-bank lenders’ – those which typically offer mortgages via brokers but don’t raise money by offering savings accounts – have largely withdrawn from the market altogether over the past fortnight.
Together, Vida Homeloans, Foundation Home Loans, Precise Mortgages and One Savings Bank have all suspended new mortgages for the time being.
Buy-to-let lenders Landbay and Fleet have both limited lending to a maximum of 60 per cent LTV while specialist lender Pepper Money, which lends to the self-employed and those with credit issues, has suspended all new mortgages, blaming the fact it cannot get a physical valuation of properties done.
All of these changes apply to borrowers seeking a mortgage to purchase a property and those wishing to remortgage an existing loan to a different lender.