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As we continue to slowly emerge from lockdown, many businesses are still requiring support from central government to help cover the costs of their furloughed staff.

If you have been furloughed by your employer via the government’s Job Retention Scheme, you may be concerned about the impact this may have on your mortgage. This may be of particular importance at this time if are thinking of buying a home or moving or if you are approaching the end of your current mortgage term and looking at rates with your lender via a remortgage.

Here at Resolve we appreciate that this may be a very uncertain time and our aim is to provide you with as much information as possible regarding the impact of being furloughed on your mortgage options. To assist you we have answered some commonly asked questions on applying for a mortgage while on furlough. The good news is that that many of the UK’s lenders are continuing to accept mortgage applications and will use furlough pay as income.

 

I am employed and currently on furlough. How will my income be assessed?

If you are receiving 80% of your normal income then many lenders will assess affordability based on what you are actually receiving, not your usual salary. For example, if your usual salary is £30,000 and you are currently receiving £24,000 then mortgage lenders will use this latter figure when assessing how much you can borrow.

Some lenders will also take in to account any top-up that your employer is providing e.g. taking you to 100% of previous earnings. You will need to evidence this, via your payslips.

To confirm your borrowing ability, our advice, as always, is to seek help from a good mortgage adviser who has access to as many lenders as possible. Considering your circumstances, they will be able to advise you on how much, and from whom, you can afford to borrow.

 

I am earning more than £30,000 per year – how much can I borrow?

If you earn more than £30,000 per year, the above also applies. For example, if your usual salary is £60,000, but your employer is topping you up to £48,000, using £30,000 from the Job Retention Scheme with the remainder from your employer, a lender will use £48,000 as your income. If your employer is topping you up to 100% to £60,000 then a lender will use £60,000 as your income.

 

I have returned to work from furlough – will a lender use my normal income?

 The short answer is yes, provided you can evidence this e.g. a letter from your employer or the most recent payslip showing your normal income.

 

I normally earn additional income such as commission, bonus and overtime – will a lender take this into account?

 Additional incomes such as commission, bonus and overtime are more complex at this time. Lenders are concerned as to whether anything received prior to the lockdown is going to be paid in the future as we return to ‘normal’. Many lenders, therefore, have stopped accepting these additional incomes for the time being.

Some lenders, however, are still accepting these. They will however assess your application manually taking into account what you do, the frequency and how much you earn. If it is likely that these are going to be sustainable, and we can evidence this to a lender, then it is possible they will still take this income into account when assessing how much you can borrow.

A good mortgage adviser will discuss your situation with a lender prior to submitting the application, to ensure the best chance of success and that your expectations are met.

 

Could a computer still say ‘No’?

 It is a fact that many credit decisions are arrived at by a computer assessing data. Since the start of the pandemic, however, many lenders have brought back humans to make the decision (underwriters). Whilst this is an important part of the process, it is leading to delays, but the aim is to ensure that the right decision is arrived at for both the borrower and the lender.

Some lenders have introduced additional forms which need to be completed so that they can obtain additional background information on your circumstances to help them arrive at the correct decision.

We understand that this may cause concern.

‘Could I be declined by a person whereas the computer would have said yes?’

Our experience so far is that lenders are taking a pragmatic and compassionate view of borrower’s circumstances. Our advice would be to seek the right support from a mortgage broker like us, to stand the best chance of obtaining the mortgage you require. We are dealing with lenders, and their changing requirements, day in, day out and are more than happy to share this information to ensure we help get you the best mortgage.

 

Are the mortgage options available, reduced?

Currently yes, however we expect this to be temporary. A few of the reasons for this:

– Lenders want to lend however, currently, like all businesses are having to carefully manage their resources. For example, keeping staff safe in a working environment and dealing with existing borrowers seeking payment holidays.

– Some lenders have capped their loan-to-value ratio. This is the amount you can borrow against the property value (normally a percentage e.g. 75%). So, at this time you may therefore need a larger deposit.

– For remortgaging, some lenders have limited the purposes that you can do this for e.g. capital raising.

 

Obtaining up to date advice is the key to successfully navigating the current mortgage market and successfully obtaining the mortgage you need and can afford. Speak to us today, if you are looking at options.

 

Your home maybe repossessed if you do not keep up repayment on your mortgage.

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