Things may have changed in the property and mortgage market since the start of the year, but the sector has certainly not “shut down”, say brokers.
A number of reports have documented lenders removing many of their mortgage products from their books in recent weeks. This is a direct response to the threat of coronavirus – or COVID-19 – on the industry. This is particularly the case with high loan-to-value (LTV) products.
The main reason for this is not down to a floundering market, or credit or liquidity issues, which was a major factor behind the economic turmoil of the 2008 financial crisis. Instead, because of social distancing rules, it has become almost impossible for lenders to carry out physical mortgage valuations. Because some lenders are unwilling or unable to use other methods of valuation, they have removed a number of their products.
Generally, this is mainly affecting new mortgage products (as opposed to remortgages) offering higher LTVs to borrowers. Some have capped their LTVs at 60%, including Lloyds Banking Group. This means borrowers with less than a 40% deposit might struggle to find a mortgage that caters for them. Others have been more generous and capped at 75%, such as Nationwide.
This isn’t always the case, however. Another option for lenders is to accept automated, desktop, or drive-by valuations.
Getting a property valuation
An automated valuation model, or AVM, is based on past price performance of similar local properties. It uses data and algorithms to come up with the figure, meaning no one visits the property at all. Similarly, a desktop valuation uses data and algorithms, as well as local knowledge. Valuers can also use Google Street View to do a virtual “drive-by”.
A drive-by valuation is much as it sounds. It involves the valuer driving past the property to examine the external condition, and assess it against surrounding properties, too.
The above valuation methods do not require any human-to-human interaction, and can be an accurate way of assessing a property’s current value, along with other information about its condition. Certain lenders have announced they will be using such methods to stay in operation.
Joe Arnold, managing director of Arnold & Baldwin Chartered Surveyors, said: “The market can continue as we use desktop valuations and we have already been advised that physical inspections will not be mandatory for many of our lender clients.”
“When it comes to placing a case, it is important for brokers to consider the valuation techniques accepted by a lender and to work with surveyors, like Arnold & Baldwin, that are able to deliver those desktop valuations.”
Apply now to secure rates
According to Greg Cunnington, director of lender relationships and new homes at Alexander Hall, lenders are still keen to do business. They may just need to scale back in the short-term to deal with valuation issues, as well as staff shortages and the limitations of home-working.
While new physical mortgage valuations are deferred for around four weeks, he urges borrowers to apply anyway.
“By submitting the application you are locking in the mortgage rate offered with most lenders, which with current fluctuations is worthwhile to secure a low rate on your mortgage,” he says.
“You can also get the majority of the paperwork and processing done, so that just the valuation will be required.
“Also, some lenders will look to do a valuation on a desktop, or automated, basis, using data and knowledge of the location.
“Where these are applicable, and on remortgages these are quite common, applications are processing to mortgage offer as normal. An intermediary can help guide you on which lenders offer these types of valuations.”
The industry should embrace technology
The majority of the UK population – like other parts of the world – is currently working from home. Twenty years ago, this would not have been possible and could have destroyed many industries. Now, however, while some sectors will suffer, technology means many things can carry on.
Most people have the internet at home, and many have superfast broadband. Companies are also investing more than ever in technology for their staff. New apps and systems are being created all the time to enable automated or digital process that once required paperwork.
This is the case for many parts of the housing industry. Vadim Toader, CEO of Proportunity, believes technology is lacking among banks and lenders. This could have a knock-on effect for homebuyers, he says.
“We understand that these are uncertain times and lenders need to practice caution. But for some these measures will cause an unnecessarily strenuous experience, on top of an already stressful pandemic.”
He adds that banks have been “poor” at adapting to technology, “particularly with mortgage lenders, which are the slowest adopters of cutting-edge technology”.
Nick Morrey, product technical manager at John Charcol, agrees. However, he says that full valuations, rather than digital, are necessary for many purchases. This includes high LTV transactions and more complex ones.
He adds: “Hopefully lenders, along with other businesses, will have to amend their work practices accordingly should (and when) something like this happens again.”
Mortgage rates continue to fall
The latest report from moneyfacts.co.uk shows that mortgage rates in the UK have reduced further. The average two-year fixed rate has dropped by about 0.06% since 11 March. Five-year fixed rates have fallen by around 0.05% in the same period. And the average standard variable rate (SVR) is now around 0.14% lower.
However, experts urge borrowers on an SVR to think about fixing now. The average SVR may have fallen, but it is still around 2.39% higher than the average two-year fix. According to Eleanor Williams of moneyfacts.co.uk, switching would protect customers from future interest rate hikes.
At BuyAssociation, we have a number of mortgage broker partners who can offer independent, expert advice. Get in touch with us directly for more information. Call on +44 (0) 333 123 0320 or +852 2554 5509 or sign up now.