If you’re thinking about moving to take advantage of low-interest rates and the stamp duty holiday, then recent speculation suggesting the latest recession may impact negatively on mortgage holders could be making you doubt whether it’s a good time to be moving. The global pandemic and lockdown have affected mortgage lenders and borrowers in all sorts of ways over the last few months. People are starting to consider moving house.
The first lockdown shut down the property market overnight which immediately put an end to property viewings and slowing down transactions that were already in progress.
Lenders, like all businesses, were forced to implement remote working and, also like many other businesses, faced hard decisions about furloughing staff, which led to two things: a bigger slowdown in mortgage applications processes and the withdrawal by many lenders of some of their mortgage products.
Then, in July, as restrictions began to be eased and the property sector was reopened, lenders, brokers, conveyancers, estate agents, buyers and sellers were overwhelmed as pent-up demand was unleashed into the market.
This, in turn, has in many cases meant much slower turnaround times not only in the applications process – bank and building society staff are still working mainly remotely – but also in the conveyancing journey.
Now, confirmation that the UK has, as was widely expected, slipped into the deepest recession on record (along with much of the global economy) has raised some concerns over what lies in store for borrowers, both new and existing.
The impact of lockdown on personal income had already been a concern for many lenders who began scrutinising applications more closely than had been the case pre-pandemic.
Now the spectre of a recession that could further impact job security has given rise to even greater circumspection in the lending environment.
So, where does all that leave you if you’re thinking about moving?
The reality is that the greatest risk to lenders is in the loan to value of the property (LTV) – in other words, how much of your intended new home’s value are they lending you? Essentially, what that means is the less you put in, the higher the risk they take in providing the loan.
That’s why many, if not most, lenders have withdrawn the 100% mortgages that had begun to make a reappearance before lockdown and in which they financed the whole of the property purchase.
Inevitably, the higher the LTV, the more scrutiny your application will receive from the lender’s underwriters.
Crudely and in the simplest of terms, their very broad assessment of risk is this:
Based on the information we’ve asked for, do we think this applicant is in a position financially to be able to bear the burden of the loan they want, and if we approve the application and they are unable later to repay the loan, will we be able to recover our money by selling the house?
In reality, the LTV issue will primarily affect first time buyers who have little or no cash to put into their purchase.
However, for those already on the housing ladder and looking to make their next move, the real issue is a little more straightforward.
If you can demonstrate your income has been secure over the last five months and you genuinely believe that will continue to be the case, then there’s absolutely no reason why you shouldn’t be confident about being approved for a mortgage and moving house.
People in this situation will need to make judgements about the basis on which they borrow – for example, future-proofing your repayments by opting for a fixed-rate mortgage over a longer period of, say, 5 years will usually come at the price of a higher rate of interest, meaning your repayments will also be higher.
Opting for a lower fixed rate over a shorter period presents a risk that when your deal comes to an end, as you may not be able to get a similar or better deal – meaning your repayments could increase significantly at that point.
It’s always best to get professional advice when you’re making big financial decisions like moving house and we would always recommend speaking to a professional mortgage adviser who’ll be able to talk through your personal circumstances to identify the most suitable options for you.
But in the end, if you’ve got a stable income with no reason to believe your job security could be at risk in a recession, then in many ways this is still the perfect time to be planning on moving house – especially if you can get it all completed before the stamp duty holiday ends on March 31 2021.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.