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As the owner of a financial services business and a real estate business I am seeing first-hand the challenges that are being faced by tenants, the negative sentiment amongst landlords and the pressure on the housing market that could have long term unintended consequences which will last way beyond this outbreak.
The uptake of the rent or mortgage payment holiday has seen unprecedented actions taken by lenders who removed staff away from their new business teams to departments that dealt with existing clients. Many lenders took extraordinary steps of shutting down new business whilst it deals with the influx of its existing client base. With some lenders, who were still operational, we were experiencing wait times of in excess of 2 hours to speak to the lender when usually it would be a wait time of 2 minutes.
Under the plans set out by the chancellor a borrower’s credit score must remain intact with the mortgage deferral period not recorded as a default.
Whilst this directive is welcomed the mortgage deferral will be recorded as a “U” on the client’s credit file so when it comes to arranging a new mortgage with another lender we cannot be sure at this stage, whether this will be flagged up as a negative when it comes to the new lender underwriting the application.
Could a lender’s internal risk policy, which the government would have no control over be used against the mortgage applicant when they come to apply?
We are already aware of one lender including a question on their application form which asks whether a mortgage holiday has been taken. We are also aware of another lender who has asked a client of ours to sign a “Covid-19 Declaration” which asks the mortgage client to declare that they haven’t sought a mortgage holiday on any of their existing mortgages and will not do so with the new mortgage they are offering.
We have also seen many of our clients’ mortgage offers withdrawn as a result of them requesting mortgage holidays on their other mortgage accounts.
Looking across our bank of both residential and buy-to-let mortgage many clients have chosen to take advantage of the deferral whilst they can and to hedge themselves in the event they do lose their job or their tenants call in a month’s time to say they can no longer pay.
The initiative is certainly a welcomed one but one which will require oversight to ensure that borrowers are not negatively impacted by having to pay a premium in the future because they took advantage of the mortgage deferral initiative.
I have been active in the housing market since my days at university which is over 17 years ago. When the housing market does well, there is generally a feel-good factor within the economy. We saw that positivity in January 2020 after the December 2019 general election, a time of the year when the housing market is relatively quiet due to people recovering from the Christmas hangover, that the volume of enquiries recorded by Rightmove saw 152m visits to their website. It was reported by one of the directors of Rightmove that the boom in buyer activity was outstripping the rise in the number of new sellers.
In the last 3 weeks that confidence and positive market sentiment has been suffocated by covid-19 to the extent where some experts are suggesting that we could have a 30% fall in house prices. Several lenders who we work closely with have seen buyers pull out from their purchases resulting in millions of pounds worth of transactions no longer going ahead due to the uncertainty.
Not only will this have an impact on government tax receipts (SDLT receipts likely to drop due to a contraction in transactions) the impact on small and local tradesman and businesses who will be pivotal in our economic recovery could create further dependency on the state as they are unable to secure work.
Our chancellor has shown courage and decisiveness when it has been needed the most. Once we do come out the other side, it is vital that a detailed impact assessment is carried out to establish what will be the long term effect on tenants, landlords and the housing market if we continue with the existing agenda.
Hiten Ganatra is Managing Director of mortgage brokers in Milton Keynes, Visionary Finance.