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Lockdown and Land and Buildings Transaction Tax holiday have stoked up demand

WITH the country still under some Covid-19 restrictions, you could be forgiven for thinking the housing market would be locked down too.

But think again. Not only do borrowers have a more limited choice of mortgages now, but a surge in buyer inquiries has put a strain on lenders, with many now adapting their criteria to cope with demand.

The Land and Buildings Transaction Tax (LBTT) holiday has helped to drive up activity – and prices – too.

We chatted to Kevin Roberts, director of Legal & General Mortgage Club, for his tips to help borrowers adjust to the market’s new normal and put themselves in the best position when applying for a mortgage.

1 Timing is key

Borrowers will need to get their housing plans moving if they want to take advantage of the Government’s LBTT incentives.

Kevin said: “The LBTT holiday announced in July has provided a major incentive for borrowers to press ahead with their housing plans.

“However, home buying can be a long process. Not only do you have to find a home, but the market is experiencing heightened levels of demand, so everything from mortgage applications to surveys and conveyancing is likely to take longer.

“People looking to take advantage of the LBTT changes will need to get the process of buying under way by November and ensure documentation is in order by December at the latest.”

While the LBTT holiday is acting as an incentive, it has also boosted demand and prices – which could wipe out any gain.

With a hard stop on the LBTT holiday on March 31 next year, increases in house prices may subside, so some buyers may want to wait.

2 Know what you’re looking for and what you can afford

Lockdown has changed where some buyers intend to purchase and the types of property they are seeking.

Think about how your needs may have changed and if you do plan to buy a bigger property, don’t overstretch yourself.

Kevin said: “Our latest research found 18 per cent of buyers are now planning to purchase property in more rural areas than before the crisis, with another 17 per cent intending to buy further away from their place of work.

“The number of first-time buyers now looking for properties with outdoor space also rose by 20 per cent.”

If you were planning to step on to or up the ladder before the crisis, think about how your needs may have changed over the past five months.

If it’s a bigger home or outdoor space you want, you may now have to look to new areas to stay in budget.

Consider using a mortgage adviser. They are experts in the market and will review your income and circumstances to help build a picture of exactly what you can afford.

3 Plan ahead

Check your credit report to ensure everything is in order and there are no errors – and so you know where you stand before starting the process.

Ensure your mortgage adviser has all the documentation they need, from payslips to evidence of your deposit.

If you’re self-employed, try to demonstrate future income by sharing information around new contracts or proof of business activity to help underwriters build a fair picture of your circumstances.

Kevin said: “It’s a busy time in the mortgage market, with lenders handling applications from thousands of borrowers each day.”

First-time buyers

Getting finances in order before you start the home-buying process is important. Simple things like ensuring you pay all bills on time, ensuring you are on the electoral register and keeping credit card balances below 30 per cent of your credit limit can help build up a good credit record, which is vital when applying for a mortgage.

If you’re lucky enough to have support from the bank of mum and dad, speak with your relatives about financial support at the outset before you start your application, to avoid disappointment later on.

Self-employed

The Covid-19 crisis has been particularly challenging for the self-employed, many of whom had to close businesses during the lockdown with a direct impact on their earnings.

As a result, many lenders are now taking a more manual approach when assessing self-employed borrowers, as this allows them to build an accurate picture of income and meet regulatory commitments to lend responsibly.

Lenders will still want to see typical documentation, including your SA302, but more firms are asking for evidence of income over the last three months. However, that won’t be the only proof lenders rely on.

While underwriters will often rely on past income to predict the future, proof of future business activity is also going to help make your case.

Evidence of upcoming contracts or current receipts will certainly support your application. Even the industry you work in can make a difference.

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However, there is still plenty of choice available for these buyers.

Kevin said: “Popular options include joint borrower/sole proprietor products, where another individual supports the affordability requirements of a mortgage through their salary, but they do not become legal owners of the property.

“Family support mortgages where parents or other relatives put 10 per cent of the agreed property value into a fixedterm savings account with a bank or building society can be another alternative.

“Just some of the options for these products include Buckinghamshire Building Society’s Family Assist product and Halifax’s Family Boost mortgage.

“Government-backed schemes such as shared ownership and Help to Buy provide additional routes on to the ladder.

“Our research shows that a growing number of borrowers (13 per cent) who were not intending to use Help to Buy before the crisis now plan to use the scheme, since it can help them step into a new-build property with just a five per cent deposit.”

Returning from payment holidays

About 1.9million mortgage payment deferrals have been granted, according to UK Finance, and in the coming months many of these borrowers will be facing the challenge of returning to their repayment schemes.

Kevin said: “Switching to an interestonly mortgage, or even a part repayment and part interest-only mortgage, where you pay off some of the capital, could help to keep monthly mortgage bills low. These options could act as a useful temporary measure to help those who might be struggling to meet their mortgage commitments after the payment holiday scheme concludes, before remortgaging to a full repayment product later.”

Patience is key

For all the reasons we’ve mentioned, high activity in the property market means people will need to be patient.

Kevin said: “We’re seeing thousands of buyers eager to press ahead with their housing plans. This is placing more pressure on lenders to process applications, while they continue to support many existing borrowers to return from payment holidays.

“Moreover, the coronavirus crisis has made lending a more complex affair, with providers having to take a more in-depth look at borrowers’ circumstances to check their affordability.”

A growing number of borrowers now plan to use the Help to Buy scheme

Mortgage advisers are experts in the market and they can help build an accurate picture of your options.

Kevin said: “These are unusual times and given the changes that are taking place in the mortgage market on a daily basis, I certainly wouldn’t want to be tackling the mortgage application process alone.

“Having an independent mortgage adviser on your side could make a world of difference.”