The impact of the coronavirus pandemic on the mortgage market
It was an eagerly awaited budget and just about everyone seemed to be waiting on tenterhooks for the news this year.
Chancellor of the Exchequer, Rishi Sunak, outlined the government fiscal changes to help bolster the economy in the face of testing times presented by the COVID crisis.
Fox Davidson welcomed the news, particularly stamp duty extensions and the return of 95% mortgages, but also the increased support for property developers through the Recovery Loans Scheme, which will now include loans of up to £10 million.
Here are the main points affecting property and mortgages:
Employment, self-employed income, government assistance, and mortgage affordability
The furlough scheme has now extended to the end of September, which is good news for many whose businesses are still affected by COVID, however, most lenders have said they will not lend to applicants who are still being furloughed.
The self-employed SEISS grant has been extended to a 4th and 5th payment.
Good news for self-employed, however, beware of taking this grant if it is not needed.
High Street lenders will not lend to those who have taken the grant within the last three months, and many will not lend to clients who have received the grant within the last six months.
Commercial lending and property development
CBILS and Bounce Back loans will be replaced with Recovery Loans Scheme for loans from £25,000 up to £10m until the end of the year.
Fox Davidson have been working with businesses to secure CBILS funding for businesses, secured on commercial property and to property development businesses to fund property development and sales period finance.
The new scheme is a welcome extension for many UK businesses.
High loan-to-value mortgages
A new 95% LTV government-backed mortgage guarantee was announced.
Mortgage lenders such as Santander, Lloyds, NatWest, Barclays, and HSBC, with Virgin and others to follow.
The chancellor’s statement of “turning ‘generation rent’ to ‘generation buy'” will have a major impact on the higher loan-to-value mortgage market, which, at points during the crisis, was restricted to 85% loan-to-value and has only recently returned to 90% LTV.
Fox Davidson continue to receive many enquiries from frustrated first-time buyers unable to save money at the same rate as property increases and who are desperate to get on the property ladder but only have a 5% deposit.
If you are unsure what this guarantee is, it is an indemnity guarantee which protects the lender when lending at a high loan-to-value.
The indemnity covers the lender if they had to repossess and the market had crashed leaving the lender in a negative equity situation.
Lenders used to acquire this MIG (mortgage indemnity guarantee) via insurers directly however insurers are unwilling to insure at 95% at present.
This is where the government has stepped in to allow 95% lending.
The government-backed mortgage guarantee for lenders to be able to lend up to 95% is great news, however, we still wonder about requirements for capital adequacy which lending institutions need to meet.
The amount of capital a bank has to hold in order to offset lending at 95% is still very high and we, therefore, may see lenders lending at higher rates and only to those who have practically perfect credit files.
We may also see income multiples lowered at 95% as lenders essentially cherry-pick those to lend to.
The residential property market
The stamp duty extension will be a welcome relief for many buyers who have been pushing through completion before the current deadline of March 31st.
All professionals working in the property industry including solicitors, surveyors, and property finance consultants will welcome the extension.
The news that Stamp Duty will extend to the end of June, and, furthermore the rate at which SD is charged will start from £250,000, is fantastic news for anyone buying a residential property.
The VISA system will be enhanced to allow highly skilled workers and entrepreneurs to be fast-tracked.
An unsponsored points-based system will also be introduced for those working in the science, research, and tech industries.
This is great news for those looking to relocate to the UK.
At Fox Davidson, we help many foreign nationals on VISAs acquire property in the UK.
The budget was a welcome breather for landlords who have been hit by previous budgets.
Only the freezing of the Capital Gains Tax allowance has hindered landlords this budget.
This will be a welcome relief as many were worried about large changes to the capital gains system.
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