A third of borrowers who have seen their finances hit by the pandemic have said they were likely to move onto their lender’s standard variable rate, according to research.
A January survey of over 1,000 borrowersfrom Legal & General Mortgage Club found 32 per cent who have been adversely financially impacted by Covid-19 said they were likely to move on to their lender’s SVR, rather than remortgage.
The mortgage club warned that borrowers who had seen their income fall due to the pandemic may soon be paying thousands of pounds more in monthly repayments since SVRs are typically considerably higher than fixed rates.
Kevin Roberts, director at Legal & General Mortgage Club, said: “Even for those borrowers who have seen a reduction in income, there may well be products available that would save them money in the long term when compared to their lender’s SVR.
“There are still thousands of great fixed rate-deals available, including furlough-friendly mortgages for those who have or continue to draw support from the government’s job retention scheme.”
According to the mortgage club’s research, more than half (52 per cent) of borrowers who had seen their income fall due to the pandemic were concerned that lenders would scrutinise their finances in more depth, compared to before the coronavirus.
Half were concerned their decision to take a payment deferral would affect their future mortgage options, and two-thirds (67 per cent) believed it would be harder to get a mortgage when furloughed.
Alex Kemp, partner at Ideal Mortgage Advisers, said: “We haven’t seen mortgage lenders acting more with scrutiny on employed people's income, but we certainly have with self-employed applicants, as most lenders will now need sight of the latest three months’ business bank statements to ensure they’re trading well.
“If any [self-employed applicants] have taken the government’s income support scheme then an application may be declined, or more questions asked as to why this was taken.”
Kemp added: “[Some lenders] will decline any application where there’s been any payment holidays on any forms of credit within the last 12 months, not just mortgages.”
Figures from UK Finance show there were 130,000 mortgage payment deferrals in place at the end of December, down from a peak of 1.8m in June.
Meanwhile, the research from Legal & General also found that those who had seen their incomes negatively impacted by the pandemic were more likely to feel unconfident about remortgaging (14 per cent), compared to borrowers whose incomes had remained stable (3 per cent).
Of those who did not plan to revert to their lender’s SVR, over half (52 per cent) said they were now more likely to stay with their current lender when looking for a new product, with 37 per cent doing so as they believe it to be the easiest way to secure a new deal.
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