Advice from conveyancing solicitors about the common problem faced by many in lockdown as a result of Covid-19 - what to do if your employment status changes in Covid-19 lockdown after your mortgage offer has been issued.
In normal times, you could breathe a sigh of relief once your mortgage offer came through. Of course, we are not in normal times at present during the Covid-19 pandemic and many individuals are therefore understandably anxious over job security and the possibility of their mortgage offer being withdrawn.
If you are one of the many buyers who may have unfortunately been made redundant, furloughed or had salary reductions as a result of the COVID-19 pandemic, do not panic – there are often still options available to you.
What should I do first?
Speak to your solicitor and your mortgage advisor (if you have one) and they will inform your lender if required. If you do not have a mortgage advisor, you should also contact your lender directly. Each lender’s terms and conditions will differ, so you should refer to your mortgage paperwork as to what constitutes a change of circumstance that needs to be declared.
Generally, changes in circumstances that need to be declared to your lender include:
- any material change in your personal or financial circumstances, such as a change to your income or employment status; and
- any material change in the value of the property which you are buying.
Quite often a change in circumstance doesn’t necessarily mean that your purchase will fall through; rather further checks will be required and you might be offered another mortgage product.
How can my mortgage advisor and solicitor help?
Your mortgage advisor can help by speaking with your current lender on the possibility of reducing the amount you borrow or increasing the mortgage term. Alternatively, your current lender might have more suitable mortgage products available or your mortgage adviser might be able to source a new lender with different affordability criteria. To improve your chances, you could increase your affordability by:
- paying off other existing debts (such as, credit card bills and other mortgages);
- increasing your deposit, for example with the help of family members; and/or
- including a friend or family member as a guarantor on your mortgage application (without being named on the title deeds to the property).
It is worth noting that your lender can withdraw its mortgage offer at any point – even after exchange of contracts and right up until completion.
Your solicitor can help to reduce the risks involved by:
- having a short time between exchange of contracts and completion, or even exchanging and completing on the same day, so that there is no risk of you legally binding yourself to the purchase until you are certain that your mortgage funds are on the way; and
- if you cannot exchange and complete on the same day, your solicitor could insert clauses into the contract which allow for completion to be delayed in defined circumstances (for example, if you encounter unexpected difficulties with your mortgage) with a long stop date by which completion must occur.
What is the most important question to ask yourself?
Whilst withdrawing from the purchase may seem like a last resort, if you are unable to meet your mortgage repayments, this could have a considerable impact on your credit rating and your ability to secure a mortgage in future. In the worst case, there is a very real prospect that your home could be repossessed.
Therefore, as much as you may consider this to be your dream purchase, you should carefully consider whether it is sensible to take on such a substantial financial commitment during these times of uncertainty or to wait until a time when your circumstances are more secure.
This article was written with input from mortgage broker Stuart Bailey of Bloxham, Brooks and Bailey Ltd. Click here to visit Stuarts LinkedIn profile.