Two of Britain’s largest banks have taken out new mortgages for everyone except those with the largest deposits or significant equity.
Barclays and Halifax intermediary brands have stopped selling mortgages above 60% with a loan value this week as the housing market comes to a halt amid the coronavirus outbreak.
The move caused by the coronavirus outbreak is the biggest commotion on the market since the credit crunch and reflects the actions of banks and societies during the financial crisis.
It is not clear to what extent banks have made the decision due to staffing problems, the land lockdown and a wave of customers requesting mortgage vacations, or a concern that house prices could fall.
Halifax’s step to drastically cut its new mortgage loans comes temporarily despite the Bank of England cutting interest rates twice to its lowest level
This means that those without a deposit or equity worth at least 40 percent of the value of the property will no longer be able to take out a mortgage to buy a property, or even their to refinance existing home, with the two lenders.
Novice buyers and even those with reasonable equity in their homes may now find it more difficult to find the right deal.
This is despite the fact that the Bank of England has cut interest rates twice to its all-time low of 0.1 percent, making financing for banks cheaper than ever before.
And experts are concerned that more lenders will follow, limiting the availability of mortgage contracts for borrowers.
Eleanor Williams, financial expert at Moneyfacts, said: ‘If the market experiences a large number of withdrawals from products aimed at first-time buyers, it is likely to affect competition between providers and the lower rates in this sector may start to disappear from the market . ‘
Andrew Montlake, of mortgage broker Coreco, said the move by Britain’s largest mortgage lender, Halifax, was at least in part due to it being overrun with mortgage vacation requests.
He said, “Not since the credit crunch have we seen lenders make such a flight to quality in restricting products.
“In these unprecedented times, lenders like a significant percentage of the world’s population are locked.
Not since the credit crunch have we seen lenders make such a flight to quality in limiting products
Andrew Montlake, mortgage broker
“The decision is of course partly logistics, but to stop lending above 60 percent shows the seriousness with which it takes Covid-19.
“The problem will be that many remortgage customers will be forced to either stay with their existing lender or return to more expensive standard variable rates until this crisis is over.”
Barclays told This is Money that their mortgage products have been withdrawn, to better manage the flow of new applications while some of its offshore sites were closing.
Banks and building associations have also started to take their tracker rate deals off the market, which directly follow the Bank of England’s base rate.
Brokers forge ‘selfish’ borrowers because they apply for mortgage vacations they don’t need
This week, This is Money reported that some lenders are struggling to keep track of phone calls from customers requesting a payment holiday.
A mortgage lender told This is Money: “We see a huge spike in the number of calls. The concern is that people cannot get through.
“Some are calls from people who don’t need it – it shouldn’t be free for everyone. At this time, they are clogging the phone lines. ‘
Today, broker SPF Private Clients suggested that “selfish” borrowers who did not need to take a payment vacation put further pressure on tense banking staff and make it more difficult for those who did need a payment vacation to get through.
Mark Harris, chief executive of SPF Private Clients, said, “Lenders spend all of their resources handling payment holiday requests.
But just as people store food they don’t need, there are selfish borrowers who ask for payment breaks when they don’t need them.
Mortgage broker Mark Harris has criticized ‘selfish’ borrowers for requesting payment vacations they don’t need
“This blocks the phone lines for those who do. Borrowers should ask, “Can I pay the mortgage this month?”
“If the answer is ‘yes’, keep the phone to your lender and let those who do need a payment vacation get through and arrange one.”
Harris said that banks are not limiting lending due to lack of money, but that the closure of call centers has forced lenders to work with a skeleton staff, most of which focus on arranging payment vacations.
He added, “There is also the problem with valuations. Many of the major lenders accept desktop valuations [a valuation where no property inspection has taken place] but only for a particular loan-to-value.
“Since they cannot get an appraiser to inspect the property, it is very difficult to process a mortgage application for a higher loan-to-value.”
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