We could have, perhaps more accurately, titled this piece, why you need a mortgage adviser more than ever. Which in the difficult Covid property market, has never been truer.
We have been open for business throughout the pandemic crisis but there is no denying it has been, and remains, much more difficult to place your loans, despite lockdown rules being eased. In the world of lending, life is a long way from being anything like it was pre-Covid.
Loan to Value, the terminology for how much in percentage terms, a lender is prepared to lend against a property’s market value. This has been and remains challenging. Lockdown meant no surveyors visiting houses to assess market value and prepare comparatives. Simply put how much are similar houses in the area selling for. Consequently, lenders do not know how much houses are worth. What do they do in such a situation? Reduce their LTV percentages to provide them with a degree of comfort that they have dealt with the perceived extra lending risk. What does this mean to advisers and the consumer? No 95% loans, very few 90% loans so larger deposits are required which means less buyers can meet the criteria. Meaning approved lending advances shrink, roughly by 35% for April, May, and June. A large proportion of lenders have reduced their maximum LTV to 75% and for now, that seems to be where they are content to stay, so quite far removed from being back to normal, as once wound-up, these thing take a long time to unwind. If the predictions of a severe economic downturn do prove to be true and we hope not, as we do not want to jon the doomsayers, it would be reasonable to assume it could be like this for quite a while. That means well into 2021. The positive side is we have been there before. Various recessions, I remember starting my career as an adviser in 1990, right in the teeth of a nasty recession, with more since, culminating in the dire credit crunch in the noughties. Despite all that, we survived, so did the property market and it will again.
Specialist lenders, those who are more tolerant of risk and will take cases where borrowers have less than perfect credit profiles or who are serving the casual buy to let and professional landlord markets. Risk was already higher for them, as lenders, so of course you had to pay at a higher rate of interest, but at least there was plenty of choice. Not anymore there is not. Some withdrew from the market completely and from what we hear, will never come back.
Others just shut up shop and furloughed staff whilst waiting for things to get back to normal. Some are still waiting and remain shut. Other have come back, but with a limited portfolio and as with mainstream lenders, reduced LTV’s, and expensive rates of interest. Not an easy market. There are a few choices of course, but they are harder to find and often with quite limited funding, so they go quickly. You must know where to go and ideally get some advance warning or you can be too late, find it has all gone until the next lender, gets a new tranche of funding. To sum; up a tricky market.Income calculations.
LTV is not the only factor in determining how much you can borrow. Earnings are the most important governor. Lending criteria has changed a lot. Things like overtime and bonuses which if provable, are considered, as part of a buyer's income, are being discounted a lot, or not counted at all. Basic salary and nothing else are prevalent. Furloughed income, who will, who won’t take it into account. Lenders changing their criteria, mid case and withdrawing offers when they do. Lending on income at outset and then asking for it to be proved again before completion. A difficult situation to deal with.
Essentially buying part of a property from a housing association and paying rent on the part you do not own. If you buy 50% of a property you raise a mortgage for the purchase and put down a deposit typically 10% minimum. Making getting on the property ladder a little bit easier.
There has been a bit more resilience in this sector and some innovation. When we heard early on about a 100% shared ownership scheme for first time buyers, i.e., no deposit required for the share being purchased, we thought we would publish it here on our site. The response was immediate and for the moment the facility is still available.
It may seem a little bizarre that at a time of crisis people would be considering buying homes to let out for holidays. But think it through, overseas travel is restricted, so staycations will rise and demand for places to rent to holiday in, will rise. It has become a much more active area of the market and whilst still niche, we have done a lot of business as we know where to go.
To sum up, a difficult market, changing rapidly and all the time. Despite whatever the market presents, we will be open for business and sniffing out the best deals for you. A good adviser will be more valuable to you than ever. Although you may notice a lot of them have pulled their hair out.