It is not news that the mortgage market is slowing down with large surveyors no longer being able to access properties or being closed completely. The Royal Institute of Chartered Surveyors (RICS) Regulated Member has concluded there is material uncertainty, it is suggested that the following form of words can be used for future surveys:
The outbreak of the Novel Coronavirus (COVID-19), declared by the World Health Organisation as a “Global Pandemic” on 11 March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries.
Market activity is being impacted in many sectors. As at the valuation date, we consider that we can attach less weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement.
Our valuation(s) is / are therefore reported on the basis of ‘material valuation uncertainty’ as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty – and a higher degree of caution – should be attached to our valuation than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that you keep the valuation of [this property] under frequent review.
As a result some lenders have chosen to exit the buy-to-let mortgage market altogether for the foreseeable future: Saffron Building Society, which offered a range of mortgages including for portfolio and limited company landlords, currently has no products available saying only that its product range is under review, with Melton Mowbray Building Society and Vida following suit. Together Money has suspended lending in both the buy-to-let and residential market. Barclays has withdrawn all its products for portfolio landlords. The majority of lenders have now issued a statement that they will only focus on existing clients or new business under 60% LTV.
For those that remain the lending criteria are being tightened: In recent times some lenders have been prepared to lend up to 85 per cent of the value of a buy-to-let property with Kensington Mortgages reducing its maximum loan to value lending criteria down from 85 per cent to 75 per cent.
I understand whilst some landlords are expecting with a lower Bank of England base rate it will lead to lower mortgage rates this is not always proving to be the case. “Lenders concerned about the increased risk of tenants defaulting on rents and falling property prices may well choose to widen their margins and increase the cost of borrowing. Some lenders have increased rates despite the 0.65 per cent fall in base rate where margins as a result have increased by about 1 per cent.” It is likely that rates will see an increase until the market settles, and natural competition takes over.
This is new territory for many lenders and it is unknown how long it may last for which is why some are trying to attract clients now rather than try to compete later with one example being HSBC who are offering a two-year tracker loan which charges 0.64pc above the Bank Rate of 0.1pc.
So, what can be done for those who cannot raise funds through re-mortgaging but are worried about tenants being able to pay?
It took a couple of days, but the government finally confirmed last week that the three-month payment holiday would be extended to landlords paying buy-to-let mortgages under the same conditions and via the same application process with their lender. The intention is that the saving will be passed on to tenants removing pressure from the private market. (Phare does now have a list of lenders for residential and BTL who are offering mortgage holidays).
Renters which includes social housing tenants, private renters and even lodgers are also being given additional protection from eviction for at least the next three months. Depending on how the situation progresses this may be extended if required. Despite this veil of protection being offered tenants are being encouraged to keep any evidence of loss of income due to coronavirus and discuss the issue with the landlord to allow them to plan.
Landlords and tenants “will be expected to work together to establish an affordable repayment plan,
taking into account tenants’ individual circumstances”, the government states.
The UK Government has made it very clear that they are encouraging any non-essential body and work force to close down or work from home, this has led to the Scottish Land Registry shutting it’s doors, and it is expected the UK Land Registry will follow shortly effectively closing any property purchases from proceeding as Conveyancers will not be able to complete the necessary checks.
This is in line with what the Government view that any purchases or moving should be delayed as long as possible, this is likely to effect individual house movers as chains will begin to fall apart as well as developers and builders as exchanges/completions will be delayed.
It is natural with all this uncertainty and an inability to go outside property listings has slumped amid the coronavirus outbreak. Zoopla said demand in the week to 22 March fell 40% from the week before and believe that housing transactions will continue to fall up to 60% over the next three months.
What does this all mean?
I feel that given the unknown market a degree of uncertainty will be enforced by lenders being cautious, surveyors giving pragmatic valuations, and nervousness around spending as people don’t know where the next pay cheque is coming. However, Lenders need to lend and the government is sanctioning a huge bill which can only be recovered if the UK comes out of the slump, which is done by tax being collected from property sales, consumer spending, income tax receipts, corporation tax etc, this is primarily driven in the local market by consumer confidence simply put they feel safe about tomorrow. I believe the government will do everything it can to broadcast that message to the world to speed recovering and whilst that happens innovation amongst lenders, surveyors, and companies alike is already taking hold and shaping ways business can be completed.
There will be an opportunity for well position clients who can negotiate hard to pick up a few bargains and get a head start on their business and well as develop some real loyalty with tenants if they are proactive now.