What impact is the coronavirus having on mortgages
As the affects of coronavirus uncertainty crept in, the Bank of England reduced its base rate from 0.75% to an historic low of 0.25%. This was followed by a further rates drop to 0.1% on 19th March, a move which saw interest rates fall to their lowest level in the bank's 325-year history. The bank has also ramped up its bond-buying activity.
This means that the cost of borrowing money has dropped to its lowest level, and that’s good news for some mortgage customers, especially those on standard variable rate (SVR) deals with lenders who’ve adjusted their rates and homeowners on a tracker-rate mortgages, who could see savings of up to £40 per month.
Many of the UK’s leading mortgage providers have dropped their SVR rates by the full in response to the bank's initial interest rates cut, and they include…
And many more
Further rates drops were announced following the dip to 0.1%. Virgin Money, for example, cut its variable rate by 0.65% across all mortgage products.
Customers with existing fixed-rate mortgages will not see their interest rates decline as a result of the emergency rates change, regardless of which lender they're with. Tracker rate customers will, however, benefit.
Does that mean it’s a good time to apply for a mortgage?
In light of the rates drops, some experts will tell you it’s a good time to take out a mortgage with either a variable rate or a tracker rate (products tied to the Bank of England’s base rate). Fixed rate agreements are also seeing a favourable interest rates shift for new applicants.
It’s also a good time to consider a remortgage to take advantage of the current rates, although seeking expert advice before applying for any finance is strongly recommended. Things could change without warning during times of economic uncertainty.
Should I still buy a home?
Buying a home during the coronavirus crisis could mean ending up with a very favourable interest rate, so some experts would certainly recommend pressing ahead with an application, although it's imperative to seek professional advice first as this is a time of economic uncertainty.
One of your main considerations should be whether you can afford to keep up with your mortgage payments in light of the current situation, but this would have been the case regardless of current world events.
If you're already begun a mortgage application, it's worth making sure that your lender is factoring in the latest rates changes. Make an enquiry to get independent advice from a broker if you're unsure whether your should continue with your mortgage or remortgage application.
What can I do if I can’t pay my mortgage because of coronavirus?
On 17th March, Chancellor Rishi Sunak announced that anyone who is unable to make their mortgage payments due to the impact of coronavirus can apply for a three-month payment holiday, but what exactly does that mean, and is it your only option? Read on to find out.
What is a mortgage holiday?
A mortgage payment holiday is an agreement between you and your lender that will allow you to stop or reduce your mortgage payments for a set amount of time. They can ease the financial pressure during difficult times, but they’re not without their drawbacks.
Anyone considering a mortgage holiday should bear the following in mind…
Eligibility for the holiday is on a bank-by-bank basis, so speak to your lender to find out whether you qualify and on what terms and conditions
While you aren’t making your mortgage payments, the interest is still building up so your monthly payments will be higher when they've resumed
When the holiday is over, your mortgage balance and payments will be higher
How to apply for your three-month mortgage break
If the impact of coronavirus has affected your finances and you think a three month mortgage holiday is the right solution, get in touch with your lender and explain your situation to them. Be sure to ask them what other options are available since mortgage payment holidays are often only recommended as a last resort.
Below you will find the number to call for each lender...
Accord: 0345 1200 872
Aldermore: 0333 321 1000
Bank of Ireland: 0345 300 8000
Barclays: 0800 022 4022
BM Solutions: 0345 300 2627
Clydesdale: 0800 022 4313
Coventry Building Society: 0800 121 8899
Fleet: 01257 916 800
Halifax: 0345 850 3705
HSBC: 0345 850 0633
Kensington: 0800 111 020
Kent Reliance: 0345 671 7274
Leeds Building Society: 0345 050 5075
M&S Bank: 0345 002 1127
Metro Bank: 0345 319 1200
Nationwide: 0345 730 2011
Natwest: 0800 092 9585
Newcastle Building Society: 0354 606 4488
Nottingham Building Society: 0344 481 1224
Paragon: 0345 849 4060
Platform: 01752 236 550
Post Office: 0800 169 9722
Precise: 0800 116 4385
Principality Building Society: 0300 333 4000
Sainsbury's: 0800 923 1547
Santander: 0800 783 9738
Scottish Widows: 0345 845 0829
Skipton Building Society: 0345 850 1711
The Mortgage Works: 0800 030 4060
TSB: 0345 835 3374
Virgin Money: 0345 602 8301
Your credit report would usually be affected by a mortgage holiday, but under these circumstances, that’s not necessarily the case. Many of the UK’s leading lenders, such as Halifax and Nationwide, have confirmed that customer credit files won’t be impacted.
It’s always worth checking with your mortgage lender to make sure this applies to them.
Can I take a payment holiday if I'm behind on my mortgage payments?
This could still be possible but contact your lender to find out for sure. They can tell you whether a payment holiday is the most appropriate course of action for somebody who's in arrears and may offer you alternative support.
For independent advice on this, make an enquiry to speak with an expert broker.
Could my mortgage holiday last longer than three months?
Given that the coronavirus crisis has plunged the industry into uncertainty, the Financial Conduct Authority (FCA) isn't ruling out extending these mortgage payment holidays if necessary.
The industry regulator is pledged to review its guidance over the coming months and may extend the payment breaks if this is appropriate and in customers' best interest.
Alternatives to a mortgage payment holiday
Since taking a mortgage payment holiday can have financial consequences in the long term, it’s worth exploring alternative options to make sure it’s the right decision for you.
Potential alternatives may include…
If coronavirus uncertainty has reduced your earnings, remortgaging with your current lender or switching to a different one could make your repayments more manageable. There might be more favourable rates on offer elsewhere, ones you could afford on a reduced income.
Moreover, if you have equity built up in your property, a remortgage could free up that capital so you can set it aside for the months to come. This, however, isn’t a decision to be taken lightly, so be sure to seek professional advice before going ahead
Second charge mortgages
Those who cannot remortgage or do not wish to might want to consider a secured loan (or second-charge mortgage) if they're in need of additional borrowing. This is basically a second loan secured against the equity in your property. You can read more about them in our guide to second charge mortgages.
Extending your mortgage term
Renegotiating the length of your mortgage term with your lender could mean your monthly payments are smaller, and therefore more manageable on a reduced income. Just keep in mind that lengthening your term will likely mean paying more in interest overall.
For those over the age of 55, equity release could be an option. These products allow homeowners to access some of the money tied up in their property. They function like a long-term loan secured against your home that you don’t have to repay until you die or move into long-term care. While this might sound great, there are pitfalls and alternatives to consider, so speak to an expert before making any big decisions.
Switching to an interest-only mortgage
Assuming your mortgage was taken on a repayment basis, switching to an interest-only deal could help you reduce your monthly outgoings. With an interest-only mortgage, you are only obliged to pay off the interest each month, with the loan balance due at the end of the term.
Since you’ll need to settle up at the end, mortgage providers will only lend under these circumstances if you can evidence a repayment vehicle in advance.
Check your insurance policies
It’s worth checking the small print of any relevant insurance policies you have to check whether they include things like redundancy or sickness cover.
For company owners with business interruption insurance, the government has announced a measure to make sure insurers payout for this and is offering loans and grants for eligible firms who don’t have this protection.
The Financial Conduct Authority (FCA) has some useful information about coronavirus and insurance policies on its website.
What do the coronavirus measures mean for landlords?
Landlords are, in some cases, eligible for the three-month mortgage payment holiday and are at no risk of repossession action for the time being. However, this doesn't apply across the board. Barclays, for instance, is not offering mortgage payment holidays to its buy-to-let (BTL) customers and is currently "reviewing" how best to support BTL borrowers.
If you're a landlord who's struggling to pay a mortgage due to a decline in rental income, contact your mortgage lender to find out what support is available. Expect them to request evidence that your tenants are unable to meet their rental payments due to the coronavirus crisis.
For the next three months, landlords are unable to evict tenants for missing rental payments due to financial hardship.
The above options are merely a handful of the potential alternatives available to you. For more information make an enquiry to talk things over. And for general advice about the coronavirus outbreak, consult the government’s website.
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