The impact of Covid-19 on jobs and businesses could leave many with mortgages worrying about how to maintain their payments. Those in steady employment may wish to benefit from record low interest rates and buyers from the temporary stamp duty holiday for properties under £500,000. I asked our Bionic mortgage partners Mojo Mortgages to answer some key questions about the current state of the mortgage market.
1. Covid-19 has affected many people’s income and employment prospects and in response lenders have asked for larger deposits from borrowers. What size of deposit would typically be required?
A 10% deposit would be typically required, but there are only a few products in the market. If borrowers can stretch to a 15% deposit, there will be more options and competitive rates.
2. Interest rates are low right now. Is this a good time to opt for a fixed rate? Are there any disadvantages?
The rates are low which means for borrowers who are risk averse and want stability in their payments, opting for fixed rate would be a good idea. The most important consideration when considering a fixed rate product is how long you want to fix for. Whilst fixing your mortgage for a 10 year term when the rates are low might seem like a good idea, it is very important to talk to your mortgage adviser about your plans. If you are looking to upsize/downsize or move in a couple of years, opting for a longer-term fixed rate might not be the best course of action.
3. If you already have a mortgage is it possible to negotiate a better deal with the existing lender or do you always have to switch to a new lender to achieve that?
The best thing would be to speak to a whole of market broker who can talk you through both options - the best rates available with your existing lender and what other lenders can offer. Based on the rate, fees, time within which when your current product expires, they will be able to assist you in making an informed decision.
4. Is it safer to stay with the same lender in case your employment should change as a result of Covid, will an existing lender look more favourably on loyal customers or do they view all borrowers the same?
If your employment has changed which means affordability could be affected, a product switch with your current lender might be the best course of action. It would be best to speak to a mortgage broker to explore all your options as lenders have adapted a lot of their policies considering the current economic situation.
5. Is it possible for borrowers with interest only mortgages who are coming to the end of their mortgage term to remortgage for a longer term, perhaps beyond their retirement age?
People coming to an end of their current mortgage who are on interest only should have options to remortgage providing it fits affordability criteria. If their retirement is more than 10 years away, most of the lenders will use the current income for affordability. If it is within 10 years, then some proof of retirement income is requested by most lenders. There are lenders who go up to age 80-85 on residential mortgages providing the mortgage is affordable with verifiable income.
6. If a person has lost their job or business what are the most important things for them to do with regards their mortgage? Will lenders offer repayment holidays, can the term of the mortgage be extended to keep costs down? Can they switch from repayment to interest only?
Most of the lenders have offered payment holidays during the current Covid outbreak. Repayment holidays are not a decision that should be taken lightly as they are just deferred payments and not a waived payment. It is important to only choose such options when absolutely needed. The best thing to do is to speak to your lender. Most lenders have set up specific phone lines to address this.
7. If someone is starting out as self employed how will this affect their mortgage prospects?
It depends on how the person is going to be set up and what industry they work in. Generally, lenders require 2-3 years of track record and HMRC records when someone is self-employed. There are a few lenders who can consider 1 year too. It can be tricky, especially in the current climate.
Those remortgaging might have to opt for a product switch with their current lender.
To answer your specific mortgage queries, you may access Mojo Mortgages through our Bionic Mortgages Service.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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