The Financial Conduct Authority (FCA) has issued guidance on how mortgage lenders and administrators should treat customers fairly in accordance with policies announced by the government to support mortgage holders (and renters) and the assistance being provided for furloughed employees and the self-employed.
Lenders who are regulated by FCA have interpreted the guidance and are acting accordingly. However, other lenders who are not FCA regulated (e.g. few small bridging companies) may choose not to follow the guidance.
A Mortgage Payment holiday is a measure announced by the government for struggling landlords. However, a mortgage payment holiday is merely a postponement. If a landlord chooses to use mortgage payment holiday, they should expect both interest and capital payable to be added to the loan.
“I always recommend that landlords check the full details with their lenders and reach agreement with them before proceeding.”
“In March, I checked with one of my lenders, after I explained the individual tenant’s circumstances and my own, they agreed that I met their criteria and would allow me payment holiday. So, for one of my mortgages they will suspend the Direct Debit for 3 months from May. When they resume, the monthly payment will have increased and the term of my loan will be extended by three months.
Soon I will be able to support the tenant with an agreed amount of rent arrears whilst they experience financial difficulties and are unable to make the monthly rental payments.
If I can, I will continue to make the full payments on all my other mortgages and avoid any more payment holidays for two main reasons:
1. When I stop paying each month, my loan is increasing leading to higher payments later.
2. Although they say that my credit file will not be affected, it may be noted and adversely affect my future applications for mortgages, loans and credit cards.”
New Mortgage Applications
Given the uncertainty in the market, some lenders have removed products higher than 80% Loan to value.
“I have three mortgage applications in process at the moment with two different lenders and my Broker has confirmed that some 80% LTV products have been withdrawn and that I am lucky that those that I have applied for will still go through, albeit at a much slower pace.
The delays are the result of the individuals such as Solicitors, Valuers, Lenders and Brokers who normally support the process now being overloaded due to reduced staff, working fewer hours or from home. Particularly if documents require ‘wet’ signatures and 3rd party witnesses etc.
Mortgage offers from lenders always have an expiry date, so it is worth checking with your lender or broker to ensure it is still valid.”
Some lenders have stopped new mortgages temporarily due to:
1. Shortage of staff.
2. Staff reallocated to handle mortgage holiday applications.
3. Holding off until the property market settles again, e.g. small bridging companies
A few bridging companies are still providing loans, however they are evaluating the risks and offering products with higher interest rates.
“Although the Bank of England has revised the base rate to 0.1% which is intended to help struggling businesses and individual investors and some banks have already reduced the monthly interest charged, I expect it may take some time for this base rate to be adopted into mortgage products.
I will welcome the rate reductions within mortgages and loans, however I will also see reduction within my savings interest as well.”
Property Tax, Reliefs and Grants
There are quite a few financial schemes available for employees and employers that can support Tenants and Landlords in this challenging situation. Employees or employers could be tenants who are finding it difficult to pay rent or landlords who are finding it difficult to pay mortgages.
Having information about these schemes can help explore options.
Coronavirus Job Retention Scheme (CJRS)
CJRS is a UK grant, that chancellor has announced to cover the wages of employees who are placed on temporary leave. As it is a grant, it will not need to be paid back again.
CJRS is applicable only for employers who are paying their employees through PAYE. It can be backdated till 1st March 2020 if needed.
The employer would be able to apply for a grant from HMRC for 80% of furloughed workers wage or salary costs including national insurance contributions. The grant is limited to a maximum of £2,500 per month for each qualifying employee.
“It is generally expected that employers pass this on to their employees, however there is no legal obligation to do so and some cynical friends of mine suspect that struggling businesses will not pass on the full 80% after the first month or two. Let’s hope they are wrong.”
Self Employment Income Support Scheme (SEISS)
SIESS is a grant for self-employed individuals who have lost their income due to lockdown and self-isolation. It is simply a grant so there is no requirement to repay. The self-employed can receive up to 80% of average monthly profits based upon their tax returns from the last three years. It is capped at £2,500, and is taxable income. To be eligible, 50% or more of applicants’ total income must be from self-employment. Applications are made to HMRC, and a lumpsum amount will be paid in June 2020.
There are quite a few other initiatives that UK government has started to help individuals and business to take care of COVID 19 situation. Please investigate all the options you have and see if you are eligible for any financial schemes based on your financial situation.