After making it difficult for the potential homebuyers to secure mortgages to purchase new homes due to the restrictions in the country that had been put in place by the government at the start of the lockdown on 23rd March 2020, one month later, some of the major lenders in the country have restarted to serve their customers by making it easier for them to get a mortgage. This is being done by some of the major banks that are operating in the urban areas of the company, by making some alterations to the existing mortgage process, that fall in line with the government’s policy restriction that was put in place during the late March. The banks have made changes in the Information Technology systems, to include new metrics for valuations and inspections of properties in order to underwrite the mortgages correctly. Some of the changes that have been made by Nationwide include facilities like 75 per cent as the total value of the property of the loan amount so that they could prioritise the existing borrowers.
Another issue during this period has been the unavailability of the staff at the processing centres of these banking companies. Due to the restrictions in the country, the staffs of the lenders are bound to work from their homes, which is putting pressure on them to complete all applications and hence some banks, especially during the last week of March were struggling to process all applications for mortgages. Slowly, but steadily, the pressure has started easing off and hence the lending activity has begun once again, especially during this week. The biggest issue in the last month or so was with the valuation of properties, as investigators were not being able to make visitations and to find the right value of properties, due to which the mortgages were not being processed. This has also eased off a bit, as lenders are now starting to work with less strict restrictions and norms as compared to earlier so that more mortgage claims could be processed and the families that desperately needed help could get them.
Issues surrounding Remortgage of properties
Due to the ban on the physical investigation of new or existing properties that have been renovated, lenders are not able to process remortgage claims either. The reason behind this is that sometimes homeowners make home improvements worth tens of thousands of pounds or even more, and remortgage their existing loan agreements, to show a higher value of the property after the home improvement processes, but in most cases, these improvements may not reflect an actual increase in the market values of the properties. Last month, however, the government asked buyers and sellers to postpone transactions while restrictions on coronavirus were in effect, and stopped investigators, as well as property brokers and potential buyers, for accessing occupied properties, a move that led to home improvers' rehabilitation options.
In the past, lenders and surveyors had been able to use "desktop" valuations or automated valuation models (AVMs) for loans which consisted of a smaller percentage of the total value of the land. Instead of sending a surveyor around to evaluate the value of a house, they used past prices and price increases in similar properties at the same location to determine the actual value of a home.
Measures by the Government and Lenders to support Citizens and Businesses
One of the biggest issues in the last one month for applicants of mortgages has been the fact that they have not been able to get in touch with their respective lenders, as physical visitations were not possible due to lockdown, while phone lines have been jammed, as banks are under a lot of pressure, with not at full capacity in terms of the available staff. Because of this, the government and the lending institutions allowed the borrowers to apply online, which could make the processing easier. Another measure that the government had taken is around the fact that they have allowed existing customers to take a mortgage payment holiday for three months, which basically allows the existing borrowers to delay or defer their mortgage payments by three months, to support their livelihoods in this tough economic climate. It has been reported that approximately 1 in 9 mortgage borrowers have adopted this scheme and will be deferring their mortgage payments by three months. On an average £775 wort of payment per individual is being deferred each month.
It was also reported that during the two weeks between 25 March and 8 April, the number of postponements in place were almost three times, rising from 392,130 to 1.24 million. On an average, per day, this is an increase of approximately 61,000 deferrals. It was also reported that if all mortgage payments in the country were to be deferred than total monthly payments worth £2.6 billion could be deferred overall.
The biggest relief for not just the existing and new mortgage borrowers, but all borrowers have been the slashing of interest rates by the Bank of England. Last month, after a meeting of the Monetary Policy Committee of the Bank of England on 17th March 2020, it was announced that the base rate would be lowered to just 0.1 per cent. This came as a historic decision as just during the previous month, when a large part of the experts was calling for interest rate cuts, the BOE did not obliged with any cut, stating that this could spur growth in the economy, which they were expecting, but due to the coronavirus crisis, they had to provide excess support, and they did so, by slashing the interest rates to a 400-year historical low level. This has led to some of the lenders in the country allowing mortgages at lower interest rates, and hence, more people also came out to get mortgages so that they could afford a home cheaper during this period, which is also why there was a significant spike in the number of applications for mortgages in the last one month.
What citizens do not understand is, even though high street banks have slashed interest rates, the number of new products that they are offering has reduced. And hence, the borrowers would not have many options while going for a certain type of mortgage, as they would have, under normal circumstances. In terms of high street Lenders, as per available data, HSBC Bank is still the one with the most number of options, followed by NatWest, Halifax and Nationwide. In terms of a single mortgage size, NatWest is providing the highest loan value at approximately £10 million.