by admin | Jan 10, 2021 | Mortgage News
UK Finance recently published its figures for mortgage arrears and possessions for Q3 2020. Superficially, these figures are encouraging. They show a very low level of arrears and possession action. These figures do, however, have to be set in the context of the special arrangements made for COVID19. This raises the question of what happens now?
The numbers in brief
According to UK Finance’s figures, in Quarter 3, 2020, there were 74,850 homeowner mortgages with arrears of 2.5% or more of the outstanding balance. This figure is 5% higher than the figure for Quarter 3, 2019. There were also 5,400 buy-to-let mortgages with arrears of 2.5% or more of the outstanding balance. This figure is 19% higher than the figure for Quarter 3, 2019.
Repossessions were made on 160 homeowner mortgaged properties and 230 buy-to-let mortgaged properties. This was 88% and 71% lower than the figure for Quarter 3, 2019. As Quarter 3, 2020 was a period in which there was a moratorium on involuntary possessions, it is to be assumed that either these repossessions were by agreement or that the property was already vacant (or both).
The COVID19 situation
Since March 2020, it has been possible for mortgage holders affected by COVID19 to request payment holidays. As the rules currently stand, borrowers are automatically granted payment holidays of up to six months on a self-certification basis. After this time, they must either resume payments as normal or work with their lender to find an alternative solution.
There are two points which are particularly worth noting. Firstly, these payment holidays should not result in negative markers being placed on a borrower’s credit record. Secondly, lenders can continue to apply interest to the account during the holiday period. This means that the result of taking a holiday is that a borrower’s overall balance is raised.
A small win for mortgage prisoners
On a more positive note, the wheels appear to be finally turning for the UK’s mortgage prisoners, although there is still a long way to go before they are freed from their chains. The FCA now allows lenders to use “modified affordability assessments” for qualifying mortgage prisoners. This is by no means all of them but it is at least a start.
Unshackling mortgage prisoners should be a win for everyone. The former mortgage prisoners win from being able to switch to better (i.e. more affordable) deals. The fact that these deals are more affordable should reduce the risk of default, thus being a win for lenders.
The way forward
At some point, the government will have to end the special measures put in place to support those impacted by COVID19. The only questions are when this will happen and how it will happen. In particular, will all measures be ended completely at once or will they be phased out slowly? If the latter, how slowly will they be withdrawn?
Either way, it seems fair to assume that the extent to which the UK’s mortgage market returns to “business as usual” will depend greatly on the extent to which the UK’s economy returns to “business as usual”. This means not just recovering from COVID19 but also adjusting to Brexit. The speed with which this happens may vary greatly from one industry sector to another.
In the short term, lenders may have to show a lot of flexibility to borrowers while they figure out the best path forward in their own unique situation. For example, lenders may have to start allowing greater use of interest-only deals to allow existing homeowners either to make up lost income or to sell their property on their own terms.
Your property may be repossessed if you do not keep up repayments on your mortgage.
by admin | Jan 30, 2020 | Mortgage News
The fact that mortgage lenders are now expected to apply fairly stringent “affordability criteria” to borrowers is probably, overall, a positive. It is, however, not necessarily a benefit to everyone. The media has been quick to pick up on the situation of “mortgage prisoners”, sadly lenders and the FCA seem to have been rather slow to respond, although they do appear to be getting there (at long last).
What is a mortgage prisoner?
A mortgage prisoner is essentially someone who is unable to remortgage. It is often used to refer to people who cannot switch to cheaper deals because they are now considered to be unable to afford them even though they are currently paying more on their mortgage.
It may also be used to refer to people who have had a change in circumstances which does not necessarily impact their ability to pay but does cause them to fall outside standard lending policy, for example, people who’ve recently become self-employed.
The issue of people on interest-only mortgages is a more nuanced one as they would be likely to need to switch from a cheaper deal (i.e. only paying the interest) to a more expensive one, which might quite reasonably raise questions about affordability. While acknowledging that the end effect is the same, the route there is definitely somewhat different.
How to break out of financial jail
Regardless of your situation, your first port of call should ideally be a professional mortgage broker. If the issue is simply that you are a “round peg in a square hole” then they may be able to bypass computer algorithms and get your application in front of an actual human who can apply human judgement and common sense. Alternatively, they may be able to point you towards lenders who can apply a bit of flexibility.
For example, if you are currently on an interest-only mortgage and you want to switch to a repayment mortgage knowing that you cannot afford it over the long term (e.g. after retirement), but simply wanting to build up equity in the property and to have control over when, exactly, you sell it to downsize, then a mortgage broker may be able to assist in finding a lender who can work with that.
Another option (depending on your age) might be to extend the term of an interest-only mortgage to the point where you can use equity release to pay off the principal. Depending on the type of equity release you choose, you might then be able to pay off some or all of the principal (and/or interest) and/or downsize, so you avoid dying with debts on your estate. Having said that, if you get a “no negative equity guarantee” then the extent of your estate’s liability will be limited to the value of your home after your death so that may not be a huge issue for you.
How to make yourself more attractive to mortgage lenders
A mortgage broker can help you to make the most of what you have, and the more you give them to work with, the easier it will be for them to help you. There are three key factors which determine how attractive you look to a mortgage lender. The first is your credit score and the second is your loan to value ratio, which can also influence affordability (the more you can pay upfront, the less you have to find in monthly repayments) and, of course, affordability.
There is lots of advice online about improving your credit score. In the context of remortgaging, improving your loan to value ratio basically means either paying down your mortgage to reduce the amount you need to borrow on a new mortgage or increasing the value of your home. If you have any spare cash, it may be worth looking into the latter approach to see if it increases your options.
Your property may be repossessed if you do not keep up repayments on your mortgage.
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