Borrowers applying for a mortgage should brace themselves for delays and demands for additional paperwork.
Banks and building societies have introduced a raft of new checks in response to the Covid-19 crisis to ensure homebuyers’ finances are stable.
Experts say you should now expect more questions about your employment status, with some lenders insisting borrowers provide a letter from their employer confirming their job and salary are secure.
Banks and building societies have introduced a raft of new checks in response to the Covid-19 crisis to ensure homebuyers’ finances are stable
Those who are self-employed will need to be able to prove their business can survive.
Many lenders have also clamped down on including overtime and bonuses when working out how much customers can borrow.
Here, Money Mail walks you through what to expect when applying for a mortgage post Covid-19 . . .
The good news for borrowers is that mortgage rates are at an all-time low.
The average two-year fix is now just 2.02 per cent, down from 2.43 per cent on March 1, according to Moneyfacts.
Homeowners with a typical £150,000 mortgage taken over 25 years could save £197 a month by switching to a two-year deal.
The average standard variable rate, which borrowers are moved on to at the end of their deal, is currently 4.51 per cent.
Even just by switching to the average two-year rate that is currently available — which is 2.02 per cent — could save you £4,728 over two years, according to the money comparison website Moneyfacts.
Borrowers who move to the average five-year deal could save £179 per month — or £10,740 over five years.
But be careful about switching before any fixed-rate term expires as you could face hefty exit fees. Typically, borrowers can start shopping around three months before their deal ends. Offers can last up to six months.
And the average five-year deal has fallen from 2.74 per cent to 2.26 per cent. On a typical £150,000 repayment mortgage taken over 25 years, this works out at £637 and £656 a month respectively.
The lowest two-year and five-year fixed rates are both for remortgage customers with a 40 per cent deposit.
TSB is offering a two-year fix at 1.09 per cent, with a £1,495 fee. Nationwide is offering a five-year fix at 1.34 per cent, with a £1,499 fee.
The fall in average rates is partly down to lenders pulling loans for borrowers with small deposits.
There are currently just six two-year and nine five-year deals available for those with a 5 per cent deposit, down from 137 and 142 at the beginning of March.
Experts hope lenders will begin to re-introduce more 95 per cent mortgage options as the market settles and house prices stabilise.
If you are remortgaging, you may find lenders are not as strict — particularly if you are sticking with your current provider.
For example, Virgin Money says existing customers who are not borrowing more do not need to provide bank statements if they are self-employed and can still use bonus income when they remortgage with the bank.
Having a mortgage payment holiday should not affect your ability to switch to a cheaper rate if your current deal is expiring.
But David Hollingworth, of mortgage broker L&C, says: ‘If you’ve taken a mortgage holiday because you’ve been hit hard by the pandemic, then your financial situation could restrict your options when it comes to switching to a new lender.’
New applicants should prepare for delays as lenders work through a backlog of valuations they could not carry out during lockdown.
Most major banks and building societies are now carrying out physical valuations in England again.
But in Scotland and Wales, social distancing rules mean lenders can still conduct only remote valuations, where they use information such as recent selling prices for similar properties.
However, if firms are worried about prices, or homebuyers have small deposits, borrowers may have to wait for a physical valuation.
John Baguley, tangible assets valuation director at the Royal Institution of Chartered Surveyors (RICS), says: ‘It will take lenders time to recover from lockdown. A substantial backlog exists and it will take weeks, perhaps months, to work through.’
New applicants should prepare for delays as lenders work through a backlog of valuations they could not carry out during lockdown
Most lenders will now ask borrowers if their income or employment has been affected by Covid-19.
This may include questions about whether you or your partner have been furloughed or had a pay cut, even if only temporary.
TSB, for example, has a Coronavirus Income Impact Form (CIIF), while Barclays, is asking borrowers to sign a ‘material change attestation’ form which says they must inform the lender if their circumstances change after receiving a mortgage offer.
Most banks and building societies will still lend to those who have been furloughed. Some want employers to confirm the date of return to work, or if the employee will return on full pay — which could cause hold-ups if businesses cannot yet answer for certain.
Jane King, mortgage adviser at financial planning and advisory service Ash-Ridge, says: ‘If the lender is demanding more paperwork from employers this can delay applications, especially if letters have been sent to an office which is closed.’
If you have received a pay cut, how much you can borrow will typically be based on your current income rather than what it used to be.
The self-employed will almost certainly be asked for more evidence their finances are in good shape, with many more lenders asking for three months’ worth of bank statements.
Borrowers may also be asked if they have claimed a grant using the Government’s Self-Employment Income Support Scheme.
Dominik Lipnicki, of Your Mortgage Decisions, says: ‘Lenders will not just be thinking about whether you have survived this wave financially, but whether you could survive another one.’
You can’t count on extra income
Borrowers who receive bonuses, commission or overtime may find they can no longer borrow as much as before the crisis.
Nationwide, Coventry Building Society and Virgin Money all included bonuses when calculating how much someone could borrow, but will now take into account only your base salary.
Barclays has reduced how much it will include, from 50 per cent of an applicant’s average bonus to 25 per cent.
When it comes to overtime, experts say it may depend on the industry you work in. For example, if you a waiter or bartender, it is unlikely you will be able to include overtime you did before lockdown.
However, doctors and nurses may find they can include the extra hours they are working.
Brokers have said that, unofficially, some lenders have reduced how much they will lend in general.
Andrew Montlake of mortgage brokers Coreco, says: ‘In some cases, where you might have been able to borrow five times the value of your salary, that may now be four-and-a-quarter times.’
This is Money has partnered with L&C Mortgages, a firm of independent mortgage brokers who specialise in finding the best mortgage rates and the right deal for you.