Coronavirus (COVID-19) and Bad Credit Mortgages: The Simply Adverse Guide
This guide outlines many of the measures put in place by the U.K. government to mitigate the financial impact of the pandemic on homebuyers since lockdowns were first announced on 23rd March 2020.
Although restrictions have been lifted, the team continues to work to deliver services in the most comfortable way for clients, including over the phone & via Zoom.
As always, this guide is intended to give you a general overview of the present situation and doesn’t replace individual advice, which can vary considerably from person to person. If you would like personalised, tailored advice please contact us. If you’re not ready to speak to one of our team of professional bad credit mortgage brokers just yet, why not take a look at our online mortgage forum.
February 2022 Update
On 21st February the UK government released the Living With COVID-19 plan. This outlined the end dates for many of the remaining Covid restrictions in place. While these don’t have any specific implications for homebuyers they may have financial impacts on individuals or businesses which could in turn affect your ability to meet mortgage repayments.
The most pertinent changes are:
- The ending of self-isolation support payments from 24th February 2022
- The end of the Statutory Sick Pay Rebate Scheme (SSPRS) for absences up to 17th March 2022
- The reinstatement of SSP waiting days from 25th March 2022
July 2021 Update
We are open as normal (Mon-Fri 09:00 – 22:00 and Sat/Sun 09:00 – 17:00), follow all the latest Government guidelines and regularly carry out Covid checks at all of our sites and offices.
Budget 2021 Update
The budget on 3rd March 2021 updated many of the measures put in place by the government during the pandemic. The following are most relevant to anyone considering buying a property.
Stamp Duty Holiday Extension
The chancellor confirmed that the current nil rate of stamp duty on properties worth up to £500,000, due to end on 31st March2021, will be extended until 30th June. On this date the threshold will drop to £250,000 until 30th September.
Mortgage Guarantee Scheme
There was also confirmation of a new mortgage guarantee scheme, to come into effect from April. The scheme will provide a mortgage guarantee to lenders on 95% mortgages. This helps make mortgages accessible for buyers who can only find a deposit of 5% on properties worth up to £600,000.
However, not all lenders will take part in the scheme, and in the past specialist lenders have tended not to take part in similar initiatives.
Overview
Initially the bad credit mortgage market was volatile,with deposit requirements increased and criteria often amended. Meanwhile social distancing rules made it impossible for potential buyers to physically view properties or for required surveys to be carried out. There were also reports of transactions that were already in progress being hit by the crisis.
However, the market is now settling back down, with renewed interests in home purchases aided by government guidance regarding how sales can take place. Viewings have already been taking place virtually, and leading estate agents have started to reopen branches.
Additionally, government schemes such as the Coronavirus Job Retention Scheme and the Self-Employment Income Support Scheme aim to provide financial support to both the employed and the self-employed, which may help individuals to avoid financial difficulties, and the consequent possible damage to their credit histories.
For borrowers with a history of adverse credit we were finding that some lenders were reluctant to lend to applicants who were unable to organise a deposit of less than 20% of the property value. However we are now again seeing bad credit mortgage lenders prepared to consider higher Loan To Value (LTV) deals.
Mortgage payment holiday
On 22nd March 2020 the Financial Conduct Authority (FCA) announced proposals to extend payment holidays to customers who are finding it difficult to meet their mortgage repayments. These measures are designed to help both those customers who are coming to the end of a payment holiday, as well as those who have yet to apply. Homeowners can apply for a mortgage payment holiday until 31st October.
Simply Adverse recommends that all mortgage holders seek advice before committing to apply to their lender for a mortgage payment holiday as this isn’t always the best option. Even when it is the most appropriate route for you to take, remember that you must apply to your lender for the payment holiday. Don’t be tempted to just miss a payment or cancel your direct debit.
In June 2020 the FCA confirmed a further 3-month extension to mortgage payment holidays.
Stamp Duty Holiday
The Chancellor, Rishi Sunak, has announced a Stamp Duty holiday on the first £500,000 of all property sales in England and Northern Ireland. This temporary measure came into effect from 8th July and will be in place until 31st March 2021. The average Stamp Duty bill will fall by £4,500, with some buyers saving as much as £15,000. The Chancellor has suggested that almost 90% of people buying a main property this year will pay no Stamp Duty at all.
House Moves
The government has amended their advice on house moves to make it clear that they can take place.
However, there are extensive guidelines regarding how this process should take place.These include the advice that viewings should take place virtually in the first instances and that those taking part in physical viewings should be limited to members of the same household. The information from the government also contains advice on how to manage viewings and how house moves themselves can take place safely and with regard to guidance on physical distancing.
Buyers should also be aware that it is possible that sales may be delayed due to illness or a need for one of the parties involved to self-isolate.
Essentially there is now some movement in the housing market but both vendors and sellers should be prepared to be patient so that the process can take place without risk to health, or without increasing the risk of spreading the virus.
Bad Credit Remortgages
While many remortgage deals don’t require a surveyor to visit your home to carry out a valuation survey, for those customers with a poor credit history, lenders generally ask for a survey to be conducted. The result of this is that some borrowers, whose existing deal is coming to an end and who have a poor credit history, have found it more challenging to get a competitive remortgage deal; having instead to just move onto their current lender’s standard variable rate. However following updates from the government for those profession working in other people’s homes, surveyors are now once more available to provide remortgage valuations.
Keep Taking Care of Your Finances
This is clearly a difficult time for everyone, and if you have a history of bad credit you may be particularly concerned about slipping back into debt. Despite the unusual circumstances though, much of the advice around maintaining good financial health remains the same as prior to crisis, that is that you speak to your lenders if you are having a problem.
FCA guidance offers protection to consumers, not just via mortgage payment holidays but also, for example, the guidance that repossession proceedings shouldn’t commence before 31st October 2020, the availability of credit card payment holidays or the advice that insurance firms should work with customers to look at ways top reduce premiums. There is also help available from energy companies and mobile phone companies. All the measures require communicating with banks, building societies, credit companies or other financial providers..
While payment holidays and the like won’t appear on your credit report as missed payments, they may well have an impact on your long-term creditworthiness. For this reason, we’d suggest that you always realistically assess your ability to meet your credit responsibilities. You may find for example that a reduction in say commuting costs means that you can in fact meet all payments that are due without using the special arrangements available. In short, think of the help available as a last resort rather than a first choice.
Update on payment holidays & credit files
While currently payment holidays won’t appear on your credit file, we are now seeing some indications from industry insiders suggesting that this might change. This may be particularly relevant to those who take advantage of the further 3-month extension to mortgage payment holidays, with Joe Garner, the chief executive of the Nationwide Building Society, suggesting a system of ‘temporary notices’ to alert lenders.
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