Halifax and Barclays restrict lending to those with at least 40% equity
Major lenders have started to restrict their mortgage lending to minimise risk and maximise the efficiency of their workforces.
Barclays and Halifax have announced their mortgage lending is currently only available up to 60% of the property’s value. This means that existing borrowers with less than 40% equity in their homes will not currently be able to switch their mortgage to these lenders.
There’s more than one reason for the restriction.
Firstly, since surveyors are no longer able to go inside people’s homes to conduct a valuation, lenders are reliant on automated valuation models. These are only suitable where the borrower has a large level of equity, to reduce the risk of them falling into negative equity.
This is exacerbated by the current risk that house prices will fall as a result of the Coronavirus crisis.
Secondly, with employees working from home and workforces potentially taking time off to self-isolate, lenders need to manage their business volumes so they can continue to operate with depleted numbers.
Andrew Montlake, managing director of mortgage broker, Coreco, explained: “The Halifax’s decision to stop lending above 60% LTV reflects the wholesale recalibration of risk that is unfolding in the mortgage market.
“Not since the Credit Crunch have we seen lenders make such a flight to quality in limiting products to 60% LTV and below.
“In these unprecedented times, lenders, like a significant percentage of the world’s population, are going into lockdown.
“The decision of the Halifax is part logistics, of course, but to stop lending above 60% shows the seriousness with which it is taking Covid-19.
“With physical valuations on hold, for many lenders 60% LTV is the level at which they can engage their Automatic Valuation Models effectively from a risk perspective and process cases without too much human intervention.
What does it mean for borrowers?
If your existing mortgage deal is coming to an end and you were planning to remortgage, you may need to wait if you want to move to a lender that is currently restricting applications. It depends on your level of equity.
Check with the lender or your mortgage broker, because the situation is changing on a daily basis.
At the time of writing, Nationwide, HSBC and Santander all confirmed to Your Mortgage’s sister title, Mortgage Solutions that they would still lend to borrowers with smaller levels of equity.
If you do need to wait, you could end up moving onto your existing lender’s standard variable rate, which may be higher than the rate you currently pay. If you are unable to make your payments you can speak to your lender about a payment holiday for up to three months.
You may be able to switch product with your existing lender – known as a product transfer – which might be suitable and available to borrowers without large levels of equity. If you do take a product transfer remember you could be tied into your new deal for an agreed period.
Those borrowers with 40% equity in their home, or more, should still be able to remortgage in the usual way.
Montlake added: “The issue will be that many remortgage customers may be forced to either stay with their existing lender or revert to more expensive standard variable rates until this crisis is over.
“The hope is that the mortgage market rebounds as fast as it is deteriorating once we come out the other side of Covid-19.”