The Coronavirus pandemic has had a huge impact on the financial industry, and none more so though on mortgages. But how exactly has this affected the chances of furloughed workers being able to get competitive mortgages and rates?
It’s a valid concern, and whether you are in the middle of a mortgage application and have been furloughed or are looking to buy a house after being a furloughed employee, we can help – get in touch today for a no-obligation and free consultation.
Can I still get a mortgage if I have been furloughed?
This is one of the most common questions being asked by furloughed employees following the Coronavirus pandemic of 2020.
Any worker who has been furloughed and placed on the government Job Retention Scheme may find that it has an affect their ability to get a mortgage.
Whether purchasing a property to live in, buying a buy to let property or remortgaging, lenders can view mortgage applications from furloughed employees in a different light.
For example, the mortgage lender may no longer willing to lend as much as they would before you had been furloughed. In some cases, they won’t be prepared to lend to you at all until such time that you return to full time work.
Some high street Lenders will make a decision on the amount they are prepared to lend a furloughed worker depending on whether your employer is topping up your salary to 100%. In other words, as the government Job Retention Scheme guarantees 80% of an employee’s salary it will depend on your employers paying you the difference.
If your employer does top up your salary, then some mortgage lenders will take all of this into consideration and you should be able to borrow the same amount as you would have before furlough.
So, yes, to answer your original question; furloughed employees can get mortgages still, but you might need the help and support of a specialist mortgage advisor.
Why use an advisor for a furloughed worker mortgage?
A specialist mortgage adviser can help you with details of the documents you will need to provide to evidence of your income. In fact, a specialist mortgage adviser is key with any mortgage application or time of year but at times like these can be worth their weight in gold.
At a time when hundreds of mortgage lenders are changing criteria and withdrawing tens of thousands of mortgage products it can be a great advantage to have an expert on your side.
Specialist Mortgages Online will put you in touch with an adviser who is well placed to find the right mortgage lender for your needs. The adviser will research the market for you and make sure that a lender is chosen who will consider your application on its merits and be most likely to provide you with the mortgage you are looking for as a furloughed employee.
What is a furloughed worker?
It’s worth re-visiting the definition of a furloughed employee, as it will have an impact on your mortgage application; A furloughed worker is an employee who has been asked to temporarily stop working but remains on the payroll and is supported by the government’s Job Retention Scheme (JRS).
The government will guarantee 80% of a furloughed worker’s salary up to a maximum of £2500 per month. It is then up to the discretion of the employer as to whether they top up the difference in salary.
As you can imagine, a possible shortfall in your wages, could impact your ability to get a the same mortgage deal as a furloughed worker, compared to pre-pandemic.
Will being furloughed affect my future prospects of getting a mortgage?
This is a very hard question to answer because the answer depends on so many other factors. If you are able to demonstrate that being furloughed was a one-off blip and there is no ongoing risk to your employment, then in all likely hood the majority of lenders will look sympathetically at your mortgage application.
There will probably be additional questions that lenders will ask because they will also want to understand whether being furloughed had any other impact on your finances such as causing you to be late with your payments or other commitments.
Again, by using a mortgage adviser you would be well placed to approach lenders that are most likely to be sympathetic to your particular circumstances.
What will a lender ask me to provide if I have been furloughed?
The documentation you will need to provide will vary from lender to lender. There will also be differences depending on whether you are employed or self-employed. As a starting point the following documents should be sufficient for most lenders:
- The last 3 months’ payslips for employed applicants.
- The last 2 years accounts or tax calculations for self-employed.
- The last 3 months personal/business bank accounts.
Do furloughed employees need bigger mortgage deposits?
Things are constantly changing during the Coronavirus pandemic and will most likely continue to change for a while after it has passed.
An initial reaction by some lenders was to reduce loan amounts to a maximum of 50% of the value of the property but this was a very temporary move and within a matter of weeks the offerings began to increase bit by bit until some lenders returned to levels of 90%.
The amount that you qualify for will depend on not only your own particular circumstances and credit record, but also which lender is approached. This is another reason why the help of a mortgage adviser could prove useful.
What mortgages are the high street lenders offering workers in furlough?
This information is accurate at time of publication in April 2020.
As an example of how lenders are dealing with mortgage applications from employees who have been placed in furlough, we have listed the current criteria of two of the UK’s largest mortgage lenders.
Nationwide Building Society
Nationwide will not accept any bonus, commission or overtime payments for a borrower if they are being supported by the government’s job retention measures.
The society will use 80% of the borrower’s income in the affordability assessment, up to a cap of £2,500. If their employee is making up all or part of the difference in their wages, mortgage advisers have been asked to contact the relevant business development manager.
For clients who have already passed an affordability assessment who have since been furloughed, the clients mortgage adviser should call Nationwide to let them know of the change.
If the lower income means the borrower no longer fits the affordability assessment, they can extend their term, reduce the loan amount or pause the mortgage application.
Where an applicant has been furloughed by their employer, HSBC will assess mortgage affordability based on 80% of basic income up to a maximum of £30,000 per year gross.
Mortgage brokers are asked to input the furloughed income in the application.
Where top-up income is being paid by the employer, the affordability will be based on the level of income being received. Brokers are asked to input the actual income (i.e. including top-up salary) in the mortgage application.
Evidence will also be required to validate both furloughed and top-up income and all applications where furloughed income or top-up income is being used will be reviewed by an underwriter.
These are just two lenders and as you know the UK mortgage market as hundreds. Speak to Specialist Mortgage Online today and we will put you in touch with an expert.