Cases that might have been easy to place a few months ago could now require a lot more work, with self-employed borrowers, and those who have been furloughed by their employer, finding they have a whole new set of hoops to jump through in order to get approval for a mortgage.

Increased demand for mortgages

On the plus side, demand for properties and a desire to move house have rocketed since the end of lockdown. The combination of the stamp duty holiday, pent-up demand and a surge in people reassessing where they want to live is driving a ‘mini boom’ in the market.

Rightmove says in July it recorded the highest number of agreed home sales since it began tracking the data more than 10 years ago. The property portal also says it saw more homes put on the market than in any month since the global financial crisis over 12 years ago.

This means the industry has not experienced the traditional summer drop in demand for mortgages; in fact, far from it.

Kind Financial Services mortgage and protection adviser Sabrina Hall says she has seen a significant increase in enquiries since the lockdown measures started to be eased, with a combination of purchase and remortgage enquiries coming her way, as well as people looking to borrow for home improvements.

“I have a feeling people have got bored with staring at the same walls for so long and are looking for a change. Lots of families are realising that they need a bigger house and/or outside space,” she says.

“I’ve also seen a more open attitude to protection. At the beginning of lockdown, I revisited some clients who had declined protection and they were all keen to have a further discussion, with many saying things along the lines of ‘If this has taught us anything, it’s that nothing is guaranteed in life.’”

Product availability

Despite the rise in demand, however, mortgage product choice and availability remain key issues for brokers and borrowers.

According to Moneyfacts, the number of mortgage deals available to consumers has more than halved since March. Pre-lockdown there were 5,222 mortgage products available but by August there were just 2,526 on the market.

First-time buyers with small deposits have been particularly hard hit. The number of deals available to those borrowing at 90 per cent loan-to-value fell from 183 to 70 between 1 June and 1 July. In the same period the number of deals for those borrowing at 95 per cent LTV fell from 31 to 14.

Rates have increased too. On 1 March, the average rate on a two-year fixed deal at 90 per cent LTV was 2.57 per cent, but this had risen to 2.90 per cent by 1 July and increased again to 3.07 per cent by 1 August.

SPF Private Clients chief executive Mark Harris says: “In the 90 per cent LTV market there are products available, but there are far fewer than at, say, the end of 2019.

“Furthermore, there are more restrictions as to who can access them; for example, buyer types, property types and so on. Given the lack of competition, pricing has been rising. Even if that doesn’t put borrowers off, it can be tricky to get hold of the funds with the more keenly priced lenders, such as HSBC.”

Once a mortgage product has been selected, brokers are experiencing delays caused by a range of factors. Lenders are facing considerable capacity issues due to many staff still homeworking, call centres not being fully operational, and having to deal with the second round of payment holiday requests.

In addition, valuers must follow enhanced procedures, and local lockdowns are causing delays.

London and Country Mortgages product manager Peter Gettins says: “That creates something of a perfect storm, with customer demand and expectations extremely high but the ability to deal with them still very compromised.

“Turnaround times inevitably drag out, while customers are eager to move as quickly as possible. Lenders have little option but to try to stem the flow.

“Increasing rates is usually the first option, often with little or no notice to avoid an even more damaging spike. Unfortunately, with everyone suffering the same problem, we go through cycles of increasing rates – effectively a reverse rate war.”

While all this is understandable from a lender’s point of view, it can leave customers frustrated as they miss out on one product after another. In some cases, brokers make product recommendations but cannot be sure the deal will still be available just an hour later.

Credit scoring

Some brokers have reported lenders tightening their credit controls on both residential mortgages and certain buy-to-let products.

In some cases, lenders are declining basic cases based on borrowers not meeting their new restrictive credit criteria. This could be further evidence of the cautious approach lenders are taking at the moment.

London Money director Martin Stewart says lenders are definitely tightening their credit scoring.

“It is impossible to specifically identify because we are not privy to what, where or how the lenders tweak their algorithms. But the securing of credit has become much harder and will remain that way for the foreseeable future.

“Whether that is a ratcheting-down of loan-to-values or a ratcheting-up of overall credit profiles, one thing is certain – the consumer needs to be re-educated on where the mortgage market is right now,” he says.

Gettins says that, anecdotally, some lenders may be applying their old 95 per cent policy to lower LTVs, but this is impossible to verify.

He says: “Nationwide received some criticism for limiting gifted deposits on its 90 per cent products, which seems a little unfair. It is at least offering some 90 per cent deals, unlike most other high-street brands.

“It’s encouraging that NatWest has started offering 85 per cent direct and of course we hope it can bring that to the broker market before long.”

Furloughed borrowers

Another issue facing brokers is how lenders are treating borrowers whose circumstances have been affected by the pandemic. For example, lenders are differing on their treatment of furloughed workers.

“During the early stages of the pandemic, lenders were generally happy to proceed with furloughed applicants with conditions in place [using the furloughed income caps and, where applicable, income top-ups from employers],” says Harris.

“More recently, some lenders have increased the requirements on applicants to be in receipt of an employer top-up [TSB], or required a return-to-work date [Nationwide]. A few have stated that furloughed income will not be taken into account at all.”

In general, borrowers have considerably more lenders to choose from if their employer puts a return-to-work date in writing. Nationwide, for example, will accept income from furloughed workers only if they have returned to work or will return by 2 November. But many employers are not comfortable providing the necessary letter.

Bonuses and commission are another area where lenders are stricter than before the pandemic.

Harris says: “A large number of lenders removed the ability to include bonuses, overtime and commissions in the income assessment [for example, Nationwide]. Some have been less extreme but take into account a reduced amount [such as Barclays]. A few remain as they were.

“More recently, some lenders have started taking weekly or monthly commissions back into account where a track record during the pandemic is visible.”

Early indications are that the pandemic will cause a rise in unemployment. According to the Office for National Statistics, 730,000 jobs were lost during lockdown. Experts generally predict that the UK will see more job losses when the furlough scheme comes to an end in October.

In addition, further jobs could be lost next year after employers receive a £1,000 payout from HM Revenue & Customs for every previously furloughed staff member kept in a job until January. Some companies may pocket the cash then make those staff redundant.

Payment holidays

Mortgage payment holidays were one of the first measures the government introduced to help people struggling financially. Under rules put in place by the FCA, homeowners have been able to take a break from paying their mortgage for up to six months. Similar measures are in place for credit cards and loans, with consumers having until 31 October 2020 to apply for payment holidays.

However, while the FCA promised that payment holidays would not be recorded as a missed payment on borrowers’ credit files, the regulator has repeatedly pointed out that credit files are not the only source of information used by lenders to assess a potential borrower’s creditworthiness.

The FCA recently also advised that lenders should look at a range of forbearance options and tailor these to customers’ individual circumstances and total debt.

Harris says the stance of lenders towards payment holidays has evolved over the course of the pandemic.

“Some require the applicant to be off the payment deferral for a period before processing,” he explains. “Payment deferrals do not affect the credit score but lenders may ask about the situation and the reasoning before continuing. Anecdotally, two-thirds of those who took payment deferrals have either started repaying or making part-repayments.”

Your Mortgage Decisions director Dominik Lipnicki says: “The mortgage payment holiday has, without doubt, helped many borrowers impacted by the pandemic.

“We have, however, seen that a significant amount of people took the holiday just in case they were impacted further down the road. While the holiday was not supposed to affect people’s credit rating, taking such a holiday does show a lender that, potentially, the borrower is unable to meet their outgoings. Similarly, taking a payment holiday on a loan or credit card can show that a client is under real financial stress.”

Self-employed borrowers

Some lenders have changed their stance towards self-employed borrowers, meaning those who work for themselves may find it even tougher than normal to obtain a mortgage.

Lenders are typically keen to understand the performance of a business during the past few months. Accounts, business statements, bank statements, references and so on all need to be supplied and will come under close scrutiny.

Hall says: “The problem I’m finding with self-employed applicants at the moment is that, understandably, the lenders are asking for additional information for these clients. However, the additional information is not on the initial application and isn’t always consistent, and we have to wait for the case to get assessed and then provide the additional information they ask for.

“With this in mind, coupled with how service levels are with all lenders at the moment, it means that lenders are taking twice as long, and sometimes longer, to assess a self-employed case than an employed application. In the current market, where clients are competing for properties, this is putting self-employed applicants at a severe disadvantage.”

Looking ahead, lenders, brokers and borrowers alike are stepping into the unknown. Whether the UK experiences a second coronavirus spike, and subsequently another national lockdown, will be a key factor in the fate of all three.