How to remortgage with a small deposit as lenders strike deals
Homeowners who bought with a small deposit and are now nearing the end of their fixed rate or follow-up contract could be forced into a higher interest rate, which would significantly increase monthly payments.
Most lenders say they will honor the government’s promise to offer homeowners in financial difficulty because of the coronavirus a mortgage payment holiday of up to three months.
But there are still questions about what will happen for those who need to remortgage in the next few months but no longer meet bank and building company standards following a ruthless slaughter of deals for those whose net worth is. their house is less than 40%.
Many homeowners who bought with a small deposit in 2018 will need to remortgage soon
Over the past week, Halifax, Barclays, Nationwide Building Society and Santander have restricted new mortgages and in many cases will only accept new clients looking to remortgage who have high equity in their home.
Earlier this week, Atom Bank withdrew all purchase mortgages until further notice – but said it would offer re-mortgages starting next week – while Virgin Money suspended all new mortgage applications. and capped re-mortgages at 60% of the loan-to-value ratio.
Many small lenders, especially those that offered loans to the self-employed, elderly and retired borrowers, and those who have experienced financial difficulties in the past, have suspended new lending altogether.
This means that overall, homeowners whose home equity is 20% or less will have considerably fewer options if they were to remortgage in the next few months.
Why are the mortgages being withdrawn?
Banks and building societies say they have cut much of their mortgage lines in order to focus on existing customers who need it most as they have been inundated with mortgage vacation requests.
Combined with the fact that lender staff have to work from home – and many are sick – this has forced them to struggle to keep up with demand.
There is another factor at play as well. Amid the coronavirus shutdown, the government effectively told people to abandon the moves, putting thousands of property purchases on ice.
In Scotland, the land registry has closed its doors completely preventing house sales, while elsewhere in the UK surveyors have been instructed not to visit properties to appraise them.
This has caused great concern among mortgage lenders, many of whom have responded by withdrawing all home loans above 60% loan-to-value or by suspending new loans altogether.
British surveyors are unable to enter properties to assess them.
Real estate listing site Zoopla has estimated that the number of home sales could drop by as much as 60% over the next three months, compared to the second quarter of 2019.
Prices, the company says, are expected to remain relatively stable in the near term, although it’s easy to see why lenders would be nervous about falling house prices.
All lenders report that appraisers are unable to perform physical inspections of properties because occupants self-isolate, making it more difficult for many lenders to approve mortgages for new clients or new properties – even when it comes to refinancing.
Experts suggest that’s another reason lenders are restricting the availability of mortgages – their ability to serve new customers is simply insufficient due to the coronavirus foreclosure.
What are your remortgage options?
If you have less than 20% equity in your home and your mortgage lender is still active – as all the major banks and building societies are now – you should be able to remortgage with your current provider through this. called a product transfer. .
This means you won’t have to re-check to see if you meet the lender’s affordability standards and no re-assessment is needed to approve the remortgage application.
If you have more equity in your home, you may be able to remortgage to another lender based on their valuation rules.
Some lenders accept online appraisals which can be verified by a licensed land surveyor based on their knowledge of the area.
Typically, these are just simple mortgages where you borrow the same amount you currently owe.
Those who want to borrow a little more, that is, take a new advance, will find it difficult to do so at this time.
If you’re with a mortgage lender who has put all new loans on hold and your repair or follow-up period is coming to an end soon, you may be in more trouble.
It’s likely that you can make a direct product transfer even if you have a small deposit, but that will depend on how your lender is funded.
Many small mortgage lenders are funded by large investment and retail banks, as well as private equity and hedge funds.
Many have seen these funding lines pulled in the past three weeks, which is often the reason why they are forced to pull out of the market.
What should you do now?
The advice is very clear: If you are concerned that you may not be able to remortgage with your current lender, contact your mortgage broker as soon as possible.
Mortgage lenders are constantly changing and modifying their criteria and it is impossible to stay on top of the details unless you are an expert.
According to mortgage data provider Mortgage Brain, lenders made 164 product changes in the last week alone, about six times the normal level.
Moneyfacts data shows that 1,585 mortgage transactions have been canceled by lenders since March 11, 2020.
There are still a handful of lenders who still offer mortgages to those with less than 10% equity, although many are only available through a mortgage broker, have limited funds, or have limited funds. who can borrow depending on their location.
According to mortgage data firm Twenty7Tec, this includes: AIB, Al Rayan Bank, Buckinghamshire, Chelsea, Chorley, Furness, Hanley Economic, Loughborough, Newcastle and Scottish construction companies.
First Direct and HSBC will go up to 90 percent, but tend to require good credit scores.
Don’t ask for a payment holiday … yet
This is really essential – lenders are already struggling to keep up with the volume of customers asking for mortgage payment holidays.
However, the way they handle this using their systems means you won’t be able to remortgage at a new rate while your mortgage payments are on hold.
If you need a payment holiday and need to remortgage, talk to your broker or lender first.
Usually you will be told to remortgage first and then request a payment holiday once you are secure on the new rate.
Experian, Equifax, and TransUnion have all now confirmed that consumer credit scores will be protected if you need to take emergency mortgage payment leave due to coronavirus.
What if you can’t remortgage?
It is likely that the vast majority of borrowers who need to remortgage will be able to, at the very least, perform a product transfer with their existing lender – even if not at the cheapest rate in the market.
Those who cannot will be transferred to their lender’s standard variable rate.
According to Moneyfacts, the average floating rate is now 4.76%, compared to a two-year average fixed rate of 2.37% and the five-year average fixed rate of 2.68%.
Talk to your lender and a mortgage broker as soon as possible.
Repayments on a typical 25-year £ 160,000 mortgage would drop to £ 913 per month, from £ 707.36 on the two-year average rate and £ 732.38 on the five-year average rate, leaving borrowers Additional £ 200 per month to be found.
There are ways to lower your monthly payments, however, and most lenders should be willing to discuss them with you.
They include extending the term of your loan, which will cost more in interest overall but can reduce short-term monthly expenses, switching to partial or full interest for a period, and taking temporary payment leave. .
The key message is to talk to your lender and a mortgage broker as soon as possible.
Summary of mortgage restrictions
From Tuesday this week, National construction company no longer offered mortgages to clients with less than 25% home equity or to deposit.
This new threshold also applies to homeowners who have mortgages with Nationwide’s buy-lease branch, The mortgage works.
Existing offers will be honored with offers valid for an additional three months when the offer expires within 30 days.
Last week Halifax and its middleman brands pulled all mortgages above 60% LTV, but reintroduced a handful of options on Tuesday for homeowners needing to borrow up to 80% loan-to-value.
HSBC has not yet changed its range of mortgages Santander reintroduced mortgages up to 75 percent of the loan value.
Last week Barclays restricts all new mortgages to a maximum of 60 percent of the loan-to-value ratio.
So-called “non-bank lenders” – those who typically offer mortgages through brokers but do not raise money by offering savings accounts – have largely pulled out of the market over the past fortnight.
Together, Vida Homeloans, Foundation Loans Home Loans, Precise Mortgages and A savings bank have all suspended new mortgages for the time being.
Rental lenders Landbay and Fleet both have loans limited to a maximum of 60% LTV while a specialized lender Pepper Money, which lends to the self-employed and those with poor credit, has suspended all new mortgages, blaming it for being unable to do a physical appraisal of properties.
All of these changes apply to borrowers looking for a mortgage to buy a property and those looking to remortgage an existing loan from another lender.
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