Borrowing in a crisis? Give yourself time, be open minded and expect lenders’ behaviour to diverge

Alex Ogario, Head of the Private Office at Knight Frank Finance, gives his top tips to borrowers seeking to purchase a new home, or remortgage their existing property during the outbreak of Covid-19.

It’s been a hectic two months for lenders. From two successive Bank of England rate cuts, to the lock down, to the record provisions they are now making for bad loans - operational changes that take banks years have been crammed into days, and the implications are being felt right across the mortgage market.

Many lenders are now beginning to look beyond the lockdown as they attempt to replenish their pipeline of business. Those measures include reintroducing products, raising the loan-to-value ratios they will lend to, and raising the caps at which they will accept desktop and remote valuations.

Amid all this change, there are important actions borrowers can take to secure great deals, or set themselves up for when normality returns. Below are my top tips for those looking to purchase or remortgage.

Give yourself more time.

That’s advisable in any market, but it’s more important than ever at the moment. Before the outbreak, it was sensible to look to at your options three to six months before you really begin the process. Now, you want to be thinking about it at least six months in advance, even if it’s just to have those initial conversations with your broker or lender.

Be open minded.

A lot of lenders are now more cautious, particularly when it comes to the valuation of properties, so you might need to be more open minded than you normally would be. If your existing arrangement has some complexity involved, or if your loan-to-value ratio is high, you might have to offer some other collateral or security to make your desired deal work. Approach the process in a mindset that enables you to be more creative.

Do your due diligence.

Understanding the new conditions will prevent purchasers from approaching deals under false pretences. Speak to your existing lender and broker to understand how your unique situation will influence the range of possibilities available to you, and know that presenting a deal to a lender correctly can make a big difference to the outcome.

What was possible several months ago in many cases no longer will be, because across the market as a whole the number of products available has been cut in half in three months. Make sure you’re up to date on the finance you can access before approaching sellers to ensure a smooth process.

Expect different approaches from rival banks.

Different lenders are doing different things, depending on the way in which they’ve allocated their resources and where their strengths lie. In recent weeks we’ve seen banks purposefully try to stem the flow of incoming business while they grappled with the effects of the outbreak, while others have sought to expand their client base.

That extends to product offerings too, with some banks having a much greater appetite for risk due to their relative strength to peers. We speak to around 200 lenders and the variety is a feature of the new conditions.

Consider product selection more closely.

The market currently expects interest rates in the UK to be low for a considerable period of time, and if this is the case variable rates of interest may be compelling as they are often lower and provide flexibility. However if your eyes are on the horizon, it’s also worth beginning to think about whether a long-term fixed rate product is for you.

The level of quantitative easing being carried out around the globe has implications for the future, particularly the possibility of inflation in the UK and economies across the world. If that’s the case then in a few years we may see interest rate rises. You can secure ten year rates as low as 2-2.25% in this market, and if inflation begins to creep in at the five year horizon and beyond, that could look very appealing.

If you want to discuss your options in more detail and find out what the current market means for your mortgage, do get in touch.