As the coronavirus (Covid-19) outbreak continues, so does the impact on economies across the globe. From big business to individual households, it appears that almost no one will be financially unaffected by the pandemic. We have spoken to Adam Hinder, MD of bad credit mortgage brokerage Simply Adverse, based in the UK who specializes in mortgages for any bad or adverse credit problems, to discover how the crisis has impacted upon prospective homebuyers and current homeowners, and whether their experience can offer any insights for the US market.
The difficulties facing current homeowners largely revolves around their ability to meet monthly mortgage payments, although there are also problems for anyone who has been considering refinancing their mortgage.
Initially, for buyers, many of the problems were a direct result of social distancing measures enacted by the UK government. Restrictions on ‘non-essential’ movement and on entering other households have made face-to-face viewings all but impossible, while many of those who provide essential services such as chartered surveyors were not able to carry out required inspections.
For clients, such as Adam’s, who have a history of adverse credit, marked by a poor credit score, an already difficult situation has become even more challenging. However, the outlook isn’t entirely bleak.
Adam explains, “When the crisis first hit it appeared as though the market was going to dry up entirely in the short term. There was a lot of uncertainty about whether lenders would continue to provide mortgage products due to issues around surveys and valuations, even if prospective buyers were able to find a suitable property. In addition, it seemed that even transactions that were already in progress would also be hit”
Lenders’ caution is understandable. In the same way as the US government provide access to mortgage relief for some borrowers under the CARES Act, so the UK government instructed lenders to allow borrowers to take a ‘mortgage holiday’. The most recent figures suggest around 1.2 million UK borrowers have taken advantage of this pause in payments, with this inevitably increasing the risk for lenders while reducing their liquidity.
Some specialist lenders withdrew products targeted at bad credit borrowers, a move that was reflected in the US, with many lenders raising their minimum credit score requirement, while others stopped offering FHA loans entirely. However, those, such as Simply Adverse, working in the UK market report that the feeling they are getting is that all lenders have returned and may start to return to pre-crisis conditions.
Lenders were initially influenced by the response of realtors, who had to move toward virtual and solo viewings where possible to allow prospective purchases to continue to take place. Although in the second UK lockdown, house viewings and surveys are exempt from any physical restrictions.
Balancing out: Public Health vs the Economy
The UK government has been keen to balance the need to protect public health with a desire to minimise damage to the economy. As with the US, homeownership is central to the economic life of the nation and government representatives have been keen to encourage lenders to work with buyers to allow transactions to continue when already in progress, by extending offer dates.
The UK Government has helped further with the launch of property stamp duty reductions until the end of March 2021. In addition, with a second lockdown in place in England, the FCA have proposed an extension for applications for mortgage payment holidays until January 31st 2021. Lenders are also being encouraged by the Financial Conduct Authority (who regulate UK lenders) to continue to offer tailored support.
In the US the Federal Housing Finance Administration (FHFA) extended the moratorium for evictions and foreclosures until the end of 2020. It’s also expected that with a Joe Biden victory in the presidential election confirmed, that there will be further mortgage relief, and possibly even Federally backed mortgages, to help combat the worst financial impact of the Covid-19 crisis.
In both the UK and the US, the advice has long been to start the mortgage home loan application process as early as possible, ideally, before a search for a property has taken place. For those with poor credit, where finding a deal may be much less straightforward, this is even more sensible.
Consequently, the aforementioned barriers to viewing properties shouldn’t really deter borrowers from approaching lenders in advance. As the UK lockdown eased, mortgage applications increased dramatically, meaning demand has soared and planning is even more vital.
Surviving the challenging market
In these types of cases specialist brokers who are already experienced in operating within a challenging market, such as the adverse credit market, will be able to provide the added value necessary to secure a competitive deal.
For those considering using the equity in their home to help see them through the current situation, speaking to a specialist will ensure that, firstly refinancing is the most appropriate option for your circumstances, and secondly that the deal you get is serviceable in the long-term.
Adam added “For those with a history of bad credit, getting a mortgage or remortgage (refinance) has always been more complex. However, this has never made it impossible, and this is still true. Mainstream brokers who have traditionally dealt with uncomplicated applications may be less well-placed to handle the added intricacies of the newly developing mortgage landscape than those of us who have been working with more difficult applications for some time.”
The experience in the UK suggests that while lenders were originally very wary and withdrawing products, as time goes on, they are planning to return to, if not normal conditions, then something closer to them than may initially have been expected. Brokers are already seeing the return of 85% LTV mortgages, and expect to see more. The wish to ensure that the housing market survives appears to have focussed the minds of governments and lenders towards exploring how they can continue to provide finance.
If you have poor credit Adam has given us 3 tips to help weather the current storm:
Make sure you get all the help you are entitled to
Wherever you are, spend some time researching the financial help that may be available to you. Check your entitlement to unemployment benefits, if applicable, and look at what relief your current lender may grant you.
Don’t make your credit history worse
We know that times are hard, but now more than ever it’s important to ensure that you don’t fall into debt or engage in any behaviour that will negatively impact your credit report. If you do find yourself struggling to meet any credit payments, contact creditors sooner rather than later to make suitable arrangements, don’t just stop paying.
Try and improve your financial situation
OK, this is a bit of a curveball. It sounds odd to suggest there could be any financial benefits at the moment but bear with me. Firstly, restrictions on socialising means that many of us will be spending less. Secondly, those of us who find ourselves with more time on our hands should be using that to do all that financial grunt work we haven’t had time for.
Get your tax returns in order or check that you’re on the best-priced cable contract. Use this time wisely and you could be ahead of the game as we return to normality.
Interesting Related Article: “3 New Ways to Raise Your Credit Score“