Mortgage Payment Holidays, Rates, Home Working, Valuations and more.....seek advice

What a difference a week can make!  Testing times for us all.  I want to review a few key issues this week, hence the slightly bigger column than normal!

Let’s start with Mortgage Payment Holidays:

As mentioned by the Chancellor last week, everyone may be entitled to a mortgage payment holiday of three months.  The holiday allows a borrower to DEFER mortgage payments for an agreed period of time.  At the end of the holiday, the normal monthly payments resume.  HOWEVER, you will still need to repay the money owed and you WILL incur interest on your mortgage during the holiday. Please note that you will need to speak with your lender first and they will decide whether you are eligible for the payment holiday.

You should certainly not stop your direct debits but do continue with your normal mortgage payments until the lender agrees your payment holiday.

If you don’t need to, don’t take the payment holiday! This may sound strange, but behind the scenes, and despite saying it won’t affect your credit score, it will possibly affect your ongoing ability to borrow. No one knows exactly how these holidays will be accounted for when you go to re-mortgage or buy another property.  Lenders want to see that you have consistently paid your last twelve monthly mortgage payments.  If you take the payment holiday, you will have only paid nine.  With the onslaught of technology making decisions, a computer may not be able to decipher that you’ve had an approved payment holiday for three months. It will only see that the mortgage has not been paid.  In the interim, this is may seem small beer in the grand scheme of things. The reality is that, for onward future finances, it could be huge.  We know this as in more normal climates, you can take one mortgage payment holiday and it is usually registered as a ‘U’ on your credit reports and we can sometimes have trouble getting these through lenders current systems.

Rates - are fluctuating hourly, with some resemblance to the crash in 2007/8.  Some lenders have withdrawn rates at midnight and tell everyone the day after, so they won’t receive a spike of business. We all understand why bank base rate (BBR) changed but this has resulted in a huge number of Tracker rates (tracking the BBR) being withdrawn. Existing customers charging rates obviously reduce with the changes, but these great rates are not open to new clients.  Fixed rates haven’t changed too much, but some have increased.  It’s mainly criteria where we have seen changes.  Some lenders have withdrawn high loan to values, so 95% deals and for Buy to Lets, many lenders have mainly dropped to 75% loan to value.  In short, if you find a great deal, be quick!

Home working – Most brokers, lenders, surveyors are now fully functional from home.  This is causing problems for some lenders.  One major high street lender has already confirmed that it can only handle so many bits of business each day in the new format and as such, once it reaches its quota, it will stop taking further business for that day!  Business continuity plans at their best!  

Valuations – Although it’s a slightly different business as usual, the one part of the market we all rely on is the valuation of the subject property.  The surveyor is the eyes of the mortgage lender and relies on their feedback to confirm suitable security.  If the valuer cannot assess the property, the mortgage market will grind to a halt. This is the one bit I’m really concerned about and keeping a close eye on developments.  Many lenders have already stopped physical valuations of properties to protect their employees.  Watch this space.

Finally, we, at Impact SF are fully functional and working from home during normal business hours.  We continue to offer our free advice service, so speak to the team, pick our experienced brains and we’ll help you wherever we can.  Stay safe.

HMO Licences taking up to 9 months...

If you have a House of Multiple Occupation (HMO), you should now be aware of the rules that came in to effect on 1^st October.   You also be aware that some councils are behind already on the licence applications with one rumoured to be nine months behind!

To recap - any property with five or more occupants (not all related) will now need an HMO licence, as the Licensing of Houses in Multiple Occupation Order 2018 takes impact.  

Previously, the licence applied to properties with three or more stories and five or more occupants (not related to each other).  However, it was decided to change these requirements and ultimately increase the number of properties that require a licence.

These changes impact both existing and prospective HMO landlords and full details on how to obtain licences will be available on the relevant councils’ websites, alongside other requirements the individual council may have put in place.

A minimum size for bedrooms has also been implemented and the guidance will recommend that floor space be no less than 6.51sqm for a single adult and 10.22sqm for two adults sharing.  Any room with less than 4.64sqm is not to be used as sleeping accommodation.

With the possible delays in granting the license some lenders may not be willing to assist until the approval has been actually issued.  However, speak to a specialist who has access to All Types of Mortgages as some lenders are happy to proceed once the application has been made.

Finally, also remember that the surveyor is the lenders ‘eyes’ in all financial transactions.  They will value the property for both rental possibility as well as its actual value.  As this report is for the lender, they have no obligation to tell you what is in the report or give you a copy!  If you are looking to buy a property and convert it in to an HMO, you will need to let the valuer know when they visit the property as this may change the value of the property and more importantly, the rental achievable.  This could also affect the possible loan amount that the lender will allow.

A survey is for the lender, not you!

Some weeks there is just too much news to take in and it can be difficult to assimilate and decide which to report on.  Then there are quiet weeks where nothing much seems to happen.  This week has been the latter and the mortgage market has been quieter than normal.  So, what to discuss?  Surveys!

Valuations on properties to be mortgaged come in various guises.  Every mortgage lender will require a valuation on the property to ensure the property is suitable security for their purposes.  Although, in some cases, they will not actually visit.  This is because they can often access detailed information electronically, normally called an  Automated Valuation Model (AVM).  Of course, this can prompt a borrower, who has paid a fee, to question the reasonableness of this method.  In fairness to the lenders, it is a tried and tested system and rarely proves incorrect.  They have expenses regardless of the visit and this system does have the effect of keeping prices down. 

Remember that this, fairly basic valuation is for the lender, paid for by the borrower, and it should not be relied upon as a guarantee that the property is sound and fit for purpose.  It only responds to the questions lenders ask relating to the property being suitable security for mortgage purposes.  They have no obligation to tell you what is in the report, or give you a copy!  Therefore you should always consider the benefit of an independent survey on the property you are purchasing to ensure that any and all defects are noted before signing contracts. There are two main types of survey available, aside from the mortgage valuation.

Homebuyer Report - a standard format set out by the Royal Institution of Chartered Surveyors (RICS). This will not focus on every aspect of the property as a building survey will (below), but will advise on urgent matters needing attention. It may advise if items (a leaky roof for example) might have an adverse affect on the value of the property, or if further investigations are required.

A Building Survey – an in-depth survey for all properties: listed buildings: buildings that have had extensive alterations, or of an unusual construction. The surveyor will examine all accessible parts of the property and advise on technical information: the condition relative to age: further special investigations required, and provide extensive information on major or minor defects.

Both will comment on whether the agreed asking price is reasonable, whether it reflects the condition of the property and should give you peace of mind whilst making the biggest purchase of your life! 

The Mortgage Process...

The mortgage process when purchasing a property, first time buyer or home mover, will be roughly the same. The selling agent will seek to agree a number of deadlines including the arrangement of mortgage finance. At this point you should speak to an independent mortgage brokerage who will assess your overall financial position and mortgage requirements with you. They are required by law to give you an Initial Disclosure Document detailing who they are; who regulates them; their scope of permissions; whether they are restricted to a small lender panel or ‘whole of market’; any fees and costs involved including any for advice or consultation. This document also advises how to complain if you are unhappy (now or in the future) with the advice provided.

A good advisor will complete a financial fact find ensuring that they ‘know their client’. This is necessary before any ‘advice or recommendation’ can be provided. Be patient as this process can be lengthy. It is in your best interests however, ensuring that you receive the best possible advice designed to meet your personal mortgage needs and requirements.

Once you’ve agreed the best mortgage for you, a decision in principle (DIP) will be completed, usually on-line with the chosen lender. This involves brief personal details, income disclosure and a credit search. Be wary here as too many credit searches will have a negative effect on your credit score. Ensure that the product and lender are right for you before a DIP is conducted. Possibly choose one adviser to work with you right through the process!

DIP decisions are normally instantaneous. Assuming success, it is then upgraded to full application. Payment for valuation is made (sometimes free) and the valuer confirms to the lender if, in their opinion, the property is suitable security for mortgage purposes. A more detailed in-depth survey (homebuyers report) can be arranged at the same time, but for a slightly higher cost.

The chosen lender will require information on income, identity, proof of residency as part of their due diligence requirements. Assuming no issues arise, a mortgage offer should be issued. Then, subject to the solicitors conveyancing process, you are now on the road to completion and should soon pick up the keys to your new home!