Welcome to the Simply Adverse guide to the impact of coronavirus (COVID-19) on bad credit mortgages.
The team will keep updating this page throughout the current crisis in order to keep you all up to date with the latest developments.
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.
Update 4th November 2020
Mortgage payment holidays were due to come to an end on 31st October 2020. However, in light of the new lockdown, which takes effect from 5th November 2020, the FCA has proposed that customers should be able to take an additional mortgage payment holiday of up to 6 months. Under the proposals, borrowers would have until 31st January 2021 to request a payment holiday. These proposals have yet to be agreed, and so consumers are advised to wait until the agreed measures are in place before contacting their lenders. Previous guidance still applies, that is if you can afford to continue to make repayments you should do so, and a repayment holiday should only be taken if you will otherwise struggle financially.
The government also confirmed that house sales can continue to go ahead as normal.
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.
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.
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.
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.
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.
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.
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.