Buying your first property and moving home is an exciting milestone in a person’s lifetime.
However, the process can be stressful at the best of times, particularly during a global pandemic. Despite what has been an unprecedented year, the property market remains open and is busier than ever with one in 50 properties sold subject to contract this year.
There are several factors to consider if you’re looking to purchase a new home or remortgage, especially if you’re on the furlough scheme and reduced wages.
There’s no ideal time to buy a home but if you’ve been furloughed, it’s essential you do your research and seek expert advice to ensure you’re getting the best deal for your own personal circumstances.
To help navigate the property market at this time, there are some key factors to consider.
Getting a mortgage if you’ve been furloughed
If you’ve been furloughed from your place of work during the pandemic, or are currently on furlough, you might be thinking about how this will affect your mortgage or remortgage application.
Buying a property
Being on furlough could affect how much you can borrow and how many mortgage deals are available to you.
If you’re planning to buy a house, we’d recommend calculating what you can afford using a mortgage calculator.
However, do bear in mind that many lenders will only consider 80% of your income (up to a maximum of £2,500 a month) if you’ve been furloughed.
There’s no need to wait to apply for a mortgage through a broker if you’ve been furloughed.
Your broker will scan the market to find a product that’s most suitable for your personal circumstances. If your lender changes their rates or withdraws the mortgage applied for, your broker will be able to review the market to ensure you’re still getting the most suitable deal.
Changing your mortgage offer isn’t difficult, but it is important to note that it could take a few weeks due to current demand and wait times within the market.
Remortgaging
You can still remortgage if you have been or are currently on furlough. It’s really important to keep on top of your mortgage deal.
Our research found those who don’t remortgage at the end of their initial period, risk being placed on their lender’s standard variable rate, which could cost an additional £4,500 a year. There are two main ways to remortgage:
1.Remortgaging with a new lender
If you’re remortgaging with a new lender, your lender will carry out affordability checks. If this happens, the lender will likely use your furlough income instead of your usual income which could affect how much you can borrow.
Additionally, many lenders will also not accept bonus or overtime pay if you’re furloughed which can have an impact on affordability. It’s worth using a remortgage calculator to give you an idea of the deals which may be available to you.
2.Remortgage with the same lender
You can also consider switching to a new deal with your current lender via a product transfer. If you do this, you may not have to go through affordability checks as they may proceed based on your initial mortgage application.
If you do transfer to your lender’s best deal, you could save up to £326 a month on mortgage repayments.
However, if you want to release some equity and remortgage for a higher amount than is currently left on your mortgage, your lender will need to check if you can afford the larger payments.
Each lender is different and there isn’t one set of criteria. Some mortgage lenders will consider 100% of your salary on your application (if your employer is topping up the part of your salary not covered by the furlough scheme), whilst others will request confirmation from your employer that you’ll be returning to work.
Given the current climate, you may find that lenders update or change their criteria so it’s important to keep up to date on the latest guidelines. Speak to a broker to stay informed and find the mortgage product that’s right for you.
Other changes to the mortgage market
Transaction times
Mortgages are taking longer to be approved as a result of the pandemic. It currently takes an average of 20 days from submission for a mortgage to be approved, compared to just 10 days during the same period last year.
Additionally, there are much higher levels of demand in the market, as many race to beat the Stamp Duty Holiday deadline.
This means that there are bottlenecks down the line with surveyors and conveyancers. If you’re looking to buy a new property, it’s worth bearing in mind that the current wait time to receive a mortgage approval and complete on a property in the UK is almost six months (171 days).
Low-deposit mortgages
Due to the coronavirus pandemic, the majority of lenders withdrew their 90% loan-to-value (LTV) and 95% LTV mortgages from the market because of the ongoing uncertainty.
However, the mortgage market is changing every day. Following the government’s announcement of a new 95% mortgage guarantee scheme, many lenders are now beginning to reintroduce higher LTV deals. Lloyds, Santander, Barclays, HSBC and NatWest have all launched mortgage products under the scheme.
This is positive news, especially for first-time buyers, who typically have lower deposits. However, it’s important to note that lenders still view the high LTV market as risky.
Therefore, interest rates on the new 95% LTV deals are more expensive, with some close to 4%. In comparison, mortgage rates available to those with a 25% deposit can be around 1.19%.
There’s no perfect time to buy a property. However, if you’re in the financial position to and have researched your options, don’t let any coronavirus-linked uncertainty put you off from buying your dream home.
Miles Robinson is head of mortgages at online mortgage broker Trussle
