Not only has the COVID-19 pandemic caused damage to the human race, but it has also set back the global economy due to preventive measures. Measures like social distancing, the use of facemasks, the lockdown of social and economic activities, were put in place to curb the spread of the deadly coronavirus.
Every sector of the economy felt the impact of lockdown; the mortgage industry wasn’t left out. As the economic activities were ground to a halt for weeks, it raised confusion as millions of people were out of employment or taking a pay cut. How borrowers would continue to make mortgage payments was a crucial concern amongst other constraints. Like other sectors that thrived through the pandemic, finding a way to work around the measures – is a must.
In this article, we would be examining the impact COVID-19 induced lockdown measures had on the mortgage industry.
How did COVID-19 Impact the Mortgage Industry?
Mortgage Payment Holiday
Due to the mass unemployment and halt of economic activities, this rendered people unable to keep up with their mortgage payments. This led to a considerable number of lenders to adopt a mortgage payment holiday arrangement; to ease the burden.
A mortgage payment holiday is an arrangement between the lender and the borrower whereby the lender allows the borrower to stop making payments on the mortgage for a few months. With this arrangement, the borrower is not liable for late payment penalties or damages to credit rating. However, mortgage payment holidays aren’t free as interests still run on the amount owed.
Fall of Mortgage Approvals
Social distancing rules were some of the measures enforced during the lockdown period. This measure contributed to the obstruction of the approval process of mortgages. As lenders were not able to conduct physical valuations of mortgage properties. Inevitably, this led to a drop in approval of mortgages.
Increase in Mortgage Deposits
In the wake of the pandemic, lots of rash and panic decisions were made by people to secure their interest in these uncertain times. Naturally, several lenders increased the amount to be paid as deposits for their mortgages; in a bid to secure their investment interests.
Fall of Interest Rates
As a result of the pandemic, interest rates were reduced by some governments. For instance, in the United Kingdom, the Bank of England lowered the interest rates to a record low of 0.1%. Meaning, variable-rate mortgages will experience a drop in the amount to be monthly payments. However, fixed-rate mortgages will not change as the interest rate is fixed.
A Decrease in Mortgage Deals
The fall in interest rates rebounded in the reduction of mortgage deals available in the market. As financial institutions are not cautious about extending credit with the new interest rates. In the UK, the number of mortgage deals available in the market before the lockdown has since been halved.
Strict Mortgage Criteria
The uncertainties of how borrowers can afford to finance mortgage deals have led lenders to enforce strict criteria. To ensure the security of their investments. This has worked a hardship on people looking to get mortgages, as more evidence of affordability is a need.
Seeing how the process of getting a mortgage is becoming more and more stringent. It is advisable for professionals like Mortgage Broker Bath to handle this process and safeguard your interests.