If you’re a renter who has been financially affected by lockdown, can you still go ahead and buy a property? Don’t rule yourself out of getting on the property ladder…
Are you currently renting and hoping to get your feet on the property ladder? You may have been managing your finances smoothly before lockdown. Over the last three months however, they may have been under considerable strain. If you have endured cash flow or other money issues recently, you may think your buying chances are slim, especially if you have recently had to dip into your savings.
It’s understandable you may feel that the prospect of buying your own place is less likely. Many other renters have admitted they are now feeling more pessimistic about the prospect of being able to buy their own home. Insurance firm Aviva has conducted some research and found that, six months ago, 68 per cent of non-homeowners were hoping to buy a property. Now just 52 per cent are expecting to buy. Young people have been hardest hit, as they are most likely to have lost work or seen a reduction in their income according to a report by the Resolution Foundation.
If your savings have gone down but you anticipate your income will return to normal when businesses can reopen properly, don’t rule yourself out of buying a property without even looking into it. Here’s three good reasons to consider going ahead with your plans to apply for a mortgage…
1. House prices have dropped slightly
While your savings may have gone down, property prices have also reduced slightly in the last three months, so now could be the time to get a good deal on a property. In fact, the slight reduction in house prices could be good news for first-time buyers. Estate agent Knight Frank believes that prices may have dropped by five per cent since lockdown and predicts they will fall by a further two per cent in the near future. Lloyds Bank has predicted that prices could drop by ten per cent by the end of this year.
2. You may be able to borrow more
Higher loan to value percentages – the amount you can borrow in relation to the value of a property – are resuming. When lockdown first occurred, the property market came to a standstill as valuations and viewings couldn’t take place and lenders had to adapt to the unexpected and sudden strain of staff working from home. Consequently, lenders became more cautious – focusing on existing applications rather than inviting new ones. In many cases, they reduced loan to value percentages from 80-85 per cent to around 75 per cent. This would have meant you’d need to have had a higher deposit not long ago.
However, with the property market now fully open again, and viewings and valuations taking place, lenders are resuming higher loan to value mortgages of up to 85 per cent in many cases. Lenders are keen to lend and have the money to do so.
3. Interest rates remain at an all-time low
The Bank of England’s base rate – the interest rate it charges commercial lenders – is at an all-time low of 0.1 per cent. This means that lenders can offer competitive deals and there are some very attractive fixed rate offers currently available.
Even if you are currently furloughed, provided you expect to have a job at the end of the furlough scheme, you can still apply for a mortgage. Read our blog on getting a mortgage when you’ve been furloughed.
However, it’s important to get some bespoke advice from a good broker. The current situation is unique, so it makes sense to talk to an expert with insight on how lenders are responding to current circumstances. ‘I would expect to see a spectrum of flexibility across the market,’ says Phil Leivesley, MBA’s Senior Mortgage & Protection Adviser. ‘Most lenders will be understanding and will offer pragmatic solutions to allow them to continue lending, whereas other lenders by comparison, will seem a little less accommodating.’
Working in hospitality
If you work in one of the sectors most severely affected by lockdown, such as the hospitality industry, where do you stand if you have lost income but expect it to return when restaurants and venues reopen? ‘We’re very much in unchartered waters here, so it remains to be seen how lenders will treat a return of income that had disappeared due to COVID-19,’ says Phil. ‘Some lenders will be better than others and will be more lenient, potentially accepting one month’s payslip as evidence of a return to normality. Others may hold out for three months. I suspect the self-employed may be required to provide a relatively detailed description of how their income was affected.’
If you have taken out a loan due to loss of work through lockdown or had to incur a credit card balance, it may affect how much you can borrow. ‘When it comes to credit commitments there are two elements to consider – credit scoring and affordability,’ says Phil. ‘A seeming reliance upon credit may affect someone’s credit score, although this shouldn’t be a concern for most, and the lender will have to factor in the repayments of any credit items to gauge whether the required mortgage will be affordable. An increase in unsecured borrowing may mean that you are not able to take out as big a mortgage as before.’
Complex, but not impossible
The impact of lockdown has meant that people have been affected in different ways. ‘Getting a mortgage is set to become a little more complex,’ says Phil. ‘However, with the right broker there to guide you, this doesn’t mean it will become more difficult.’
Even if you are unable to buy a property now due to problems with employment, you may be reassured to hear that interest rates are expected to remain low for some time to come. The Bank of England has suggested that the base rate could remain low for the next few years. Similarly, interest rates may only rise slightly over the next three years. While there are no cast-iron guarantees, this points to the fact that it could still be cheap to borrow in the next few years.
‘It’s impossible to predict what will happen with any certainty, but it seems very unlikely that we’ll see the cost of borrowing increase significantly any time soon,’ says Phil. ‘The fact that five and ten-year fixed rates are priced so cheaply would suggest that lenders themselves would agree.’
If you have any questions about getting a mortgage, feel free to get in touch with us and speak to a member of our friendly team who can advise you.
You may have to pay an early repayment charge to your existing lender if you remortgage. Your home may be repossessed if you do not keep up repayments on your mortgage. A fee of up to 1 per cent of the mortgage amount may be charged depending on individual circumstances. A typical fee is £495.