What Is Your Mortgage Lockdown Reality?
Over the last few days I have been reading how some lenders are putting into place procedures that they hope will help drive mortgages to completion.
They are also, in the case of Equity Release, heavily advertising. But how effective are the new processes and are the mass processors of Equity Release plans just acquiring a large list of prospects for them to hit when the lockdown measures ease?
Here are a few problems you will encounter if you are trying to move house during the lockdown.
Any borrowing against the value of a property is dependant on a realistic, preferably accurate, value of the property. When it comes to a mortgage or releasing equity then the valuation becomes crucial.
Yet I am hearing stories about valuations that, if true and representative of the wider market, are not helpful now and not helpful in the future.
Recent conversations with brokers suggest that lenders are passing valuations to surveyors who are giving valuations about 25% below estimate, taking up to a month to complete a survey and, in a few cases, declining to give a valuation at all.
Why is the Valuation important?
Lenders rely on valuations in order to make their offers of a mortgage.It doesn’t matter how much you are borrowing, it is the percentage of the loan that can and does prove problematic.
If you are buying a property for £150,000 and want a mortgage of £70,000 the chances are that even if a valuation, done remotely without a surveyor visiting the property, comes back 20% below the estimated amount, the lender will still offer you a mortgage. However, the percentage of the valuation being lent will change significantly from 47% (£70,000 loan on £150,000 value) to 58% (£70,000 loan on new valuation of £120,000). Although an offer of a mortgage may still be made there are two things that can derail the deal. Firstly, the mortgage product you wanted may have been only for loans less than 50% of valuation, so a new product will be more expensive. Secondly, the seller may not take too kindly to having the sale price dropped by £30,000 and withdraws from the sale immediately.
That example shows a problem where the loan to value is at a fairly modest level. If you are a first time buyer wanting a 95% loan to value then even the smallest reduction in the value of the property will almost certainly end your plans.
By its very nature, Equity Release plans arefor an older borrower, often a vulnerable person who, under the current situation should avoid going out, and more importantly, letting anyone in.
A number of lenders are putting in place procedures for applications to be done remotely in order to avoid contact. All the issues regarding getting an accurate valuation for a mortgage apply with Equity Release. Add to that the importance of speaking to a qualified an experienced advisor, speaking with a solicitor experienced with Equity Release, and making sure any number of family members that would usually be involved in the decision making process and what should be a fairly steady process is likely to become a very long process.
Companies in this market need to make it crystal clear what the additional problems are due to trying to do business in a lockdown situation. I have heard it argued that the strategy at the moment is to get as many enquiries on the books as possible so that the volume players in the market can complete as many cases as possible when the situation eases. I haven’t personally seen or heard enough evidence yet to agree with that opinion, but I can’t deny the thought process.
If you are in the market for Equity Release, and you can’t afford to wait a few months, then I would suggest that you can expect a lower offer that you would otherwise expect, and the delays could be into the months anyway.
Tell Me Your Story
I started this blog saying that these stories of delays are what I am being told by brokers and lenders that I know. But I would love to know whether that is an accurate reflection of things, or whether people are having different experiences in different regions. If you are a broker, surveyor, estate agent or lender, use the comment section to tell us what your actual experiences are at the moment.