How does being furloughed impact your mortgage or remortgage application?
If you have recently been furloughed by your employer you may, understandably, be worried about how this will impact your ability to obtain a mortgage or remortgage.
There are many people who were in the process of submitting their mortgage or remortgage application when their employer advised they were being placed on furlough. As a result of the ongoing coronavirus situation we have seen lenders take different approaches in the way they choose to lend to furloughed employees who have been put on the government’s Job Retention Scheme. In this post we provide an update on the current situation and how we are able to support you throughout the process.
It has been reported that around one third of all companies are planning to furlough some or all of their staff as a result of COVID-19, resulting in the government covering 80% of salaries, up to £2,500 a month.
Effectively, this results in a pay cut of 20% for an employee who earns up to £30,000 a year and whose employer is not topping up their wages. Those earning more than £30,000 stand to see a far greater decline in their earnings as a result of the £30,000 ceiling.
Over the past two weeks we have seen the majority of lenders confirm their positions for clients. The vast majority are continuing to accept mortgage applications – for both purchases and remortgages – for people who have been furloughed. Banks and building societies are, however, taking differing approaches to applications from furloughed workers.
A number of lenders are now judging whether clients can afford their mortgage repayments by basing calculations on furloughed pay, rather than the previous full salary. Clearly this has implications for the amount that can be borrowed, as these affordability calculations will result in those on 80% furlough pay being able to borrow less funds and only qualifying for smaller loans. In recent weeks we have seen Nationwide and Nat West adopt this stance to mortgage lending.
Where a furloughed employee’s employer is topping up the salary to 100% of the normal salary, some lenders (including mainstream high street lenders) are taking this into account and applications can be based on the full salary.
Those people who had recently had their mortgage approved by a lender – but who have yet to complete their transaction – are also seeing their applications being reassessed on their new furlough pay amount. This includes resubmitting pay slips and bank statements, and often results in the loan amount being reduced. Additionally, some lenders will not take an applicant’s bonus, overtime or commission into account.
For those on zero hour contracts and who have been furloughed by their employer, they should receive 80% of their average monthly salary since starting their job. Clearly, as a result of the nature of zero hour contracts, this can vary significantly. A number of lenders do provide mortgages to zero hour contract workers, but these are often restricted. Nationwide, for example, are only offering mortgages to nurses, care home workers and supermarket staff (including delivery drivers). Other lenders have announced they are supporting key workers.
A number of lenders have now instigated desktop valuations, which means that applications can continue to proceed. However, it should be noted, desktop valuations are subject to lower borrowing amounts, with Nationwide and Halifax capping at a maximum LTV of 85%.
Having recently announced the eligibility criteria for mortgage payment holidays, the majority of lenders have also now confirmed that anyone taking an agreed mortgage payment holiday will not see their credit score penalised.
Samantha Jackson, Managing Director of Cooper Associates Group, said:
‘The mortgage market is very fluid, as lenders continue to adapt to the impact of Covid-19. The situation has improved significantly from just a few weeks ago, where the majority of lenders removed products and options for borrowing above 75% of a property’s value. We expect to see all lenders add further scrutiny to the mortgage application process in the coming weeks and months. This is likely to include the addition of further questions relating to furloughing in their application process. Our mortgage advisers are experienced in guiding clients through the specific documentation which some lenders have introduced.’
Cooper Associates Mortgages is a whole of market broker, which means we have access to a wide panel of lenders, enabling us to find the mortgage which is right for you. Our mortgage advisers are on hand to guide you throughout the mortgage or remortgage process and we are able to offer advice through telephone and video calls. We would be pleased to assist anyone who requires advice at this time. To find out more call 01823 273880 or email firstname.lastname@example.org and one of our advisers will contact you to arrange a telephone or video call appointment at a time to suit you.