As the owner of both a financial services firm and a real-estate business, I am seeing at first hand the challenges facing tenants, the negative sentiment among landlords and the pressure on the housing market from the impact of the pandemic.
All of these could have long-term consequences way beyond the outbreak.
The uptake of the mortgage payment holiday by many customers has produced unprecedented actions from lenders. Some have transferred staff from new-business teams to departments that deal with existing clients. Others have taken the extraordinary step of shutting down new business altogether. Among those that are still operational, we have experienced call-waiting times of more than two hours, where usually it would be two minutes.
Credit scores
Under the support plans set out by chancellor Rishi Sunak, a borrower’s credit score must remain intact, with the mortgage deferral period not recorded as a default. Although this directive is welcomed, the mortgage deferral will be recorded as a ‘U’ on the client’s credit file; therefore, when arranging a new mortgage with another lender, we cannot be sure at this stage whether this will be flagged as a negative when the new lender comes to underwrite the application.
Could a lender’s internal risk policy, over which the government has no control, be used against the mortgage applicant when they come to apply? We are already aware of one lender that has included a question on its application form that asks whether a mortgage holiday has been taken. Another has asked a client of ours to sign a ‘Covid-19 declaration’, which asks the client to declare that they have not sought a mortgage holiday on any of their existing products and will not do so with the new mortgage they are seeking.
We have also seen many of our clients’ offers withdrawn as a result of them requesting mortgage holidays on their other accounts.
Hedging bets
Looking across our banks of both residential and buy-to-let mortgages, many clients have chosen to take advantage of the deferral to hedge themselves in case they lose their job or their tenants call in a month’s time to say they can no longer pay the rent.
The mortgage holiday initiative is certainly welcome, but it will require oversight to ensure borrowers are not negatively affected in having to pay a premium in the future because they took advantage of the scheme.
I have been active in the housing market since my days at university more than 17 years ago. When the sector does well, there is generally a feel-good factor within the economy.
We saw that positivity in January after the December 2019 general election; a time of year, typically, when the housing market is relatively quiet. Rightmove recorded 152 million visits to its website in January. One of its directors reported that the boom in buyer activity was outstripping the rise in the number of new sellers.
In the past few weeks that confidence and positive market sentiment have been suffocated by Covid-19 to the extent where some experts suggest there could be a 30 per cent fall in house prices.
Several lenders with which we work closely have seen buyers pull out from their purchases, resulting in millions of pounds’ worth of transactions no longer going ahead due to the uncertainty. This will have an impact not only on government tax receipts but also on small trades and businesses, which will be pivotal in our economic recovery and could create further dependency on the state if they are unable to secure work.
Our chancellor has shown courage and decisiveness when they were needed. Once we come out the other side, it is vital that a detailed impact assessment is carried out to determine the long-term effects – on tenants, landlords and the housing market – if we continue with the existing agenda.
Hiten Ganatra, managing director, Visionary Finance
