Our Guide to Furlough Mortgages
At the time of writing (May 2020), the UK is still in lockdown and many people are still unable to work due to being ‘furloughed’ by their employer.
Figures reveal that around 7.5 million jobs in the UK are currently covered by a government-backed furlough scheme.
The scheme is designed to preserve jobs by letting employers temporarily lay-off staff without pay in the knowledge that the government will continue to pay 80% of their wages. This is designed to ensure that you still have a job to go back to once the current lockdown is lifted and that, in the meantime, you continue to receive 80% of your normal salary.
The British Chambers of Commerce (BCC) reported that two-thirds of businesses had already made some use of the scheme, one in three employers had furloughed at least 75% of their workforce, and that at least one third of all private sector employment will have been subject to furlough – a total of between seven and ten million jobs.
So, can you still get a mortgage when you have been furloughed from work? This quick guide explains what is likely to happen if you are furloughed – and how you can, indeed, still apply for a mortgage.
Why is it difficult getting a mortgage when furloughed?
If you are currently looking for a mortgage, you are likely to be facing a frustrating paradox. After the Bank of England slashed the base rate of borrowing from 0.25% to 0.1% (the lowest it has seen in the Bank’s 325-year history) in March 2020, mortgage rates have dropped.
Unfortunately, the Bank’s reasons for cutting the base rate reflected government concern at the economic impact of the coronavirus crisis – a concern inevitably shared by mortgage lenders. With the economic outlook harbouring considerably greater levels of risk, mortgage lenders across the board have steadily withdrawn the availability of many of their products.
Recent figures reveal that the number of mortgage products available had fallen by around two-thirds for applicants with deposits representing from 5% to 25% of the purchase price.
With lenders currently applying somewhat stricter terms and conditions, applicants may be offered lower loan to value mortgages – in other words, they may need larger than usual deposits. Since salaries are temporarily reduced to the government-backed 80% of normal income, prospective borrowers may also be able to borrow less.
Can I still buy or proceed with a property purchase if I have been furloughed?
Despite those restrictions, however, the mortgage market remains very much open for business.
Mortgage lenders continue to welcome applications for new mortgages – even though the range of option may be more limited and the maximum amount borrowed restricted to an assessment based on the maximum monthly income of £2,500 guaranteed under the government furlough scheme (plus any top-up that can be confirmed and continues to be in payment by the employer).
Just as at any other time, those applicants with a bigger deposit to offer are likely to be offered mortgages at more favourable rates than those applying for the highest loan to value mortgages available.
What documentation will I need for a furloughed staff mortgage application?
Whenever you apply for a mortgage, a certain amount of documentation is customarily required in support of your application – conditions during the current coronavirus crisis are no exception.
The documentation critical to any lender, of course, relates to your level of income and the reliability and security of your employment in the longer-term.
At the moment, therefore, documentary evidence from your employer is likely to be critical. Evidence which may prove especially important is:
- confirmation that your employer is participating in the government’s furlough scheme – together with your proof of receipt of 80% of your regular salary;
- confirmation of any top-up your employer will continue to pay – and for how long – in addition to the government-guaranteed 80% of earnings; and
- any indication from your employer about the future of your job post-coronavirus – confirmation, in other words, that the furlough is temporary and that your job remains yours to reoccupy in future.
How is my income calculated when applying for a mortgage for furloughed employees?
Most lenders are likely to consider the 80% of normal salary guaranteed to the government’s job retention scheme when making their assessment of the affordability of any mortgage advance.
If your employer confirms that they are continuing to top-up your income – say, to 100% – then this may also be taken into account by the lender.
Can I remortgage if I have been furloughed?
An investigation by the Consumers’ Association’s Which? magazine on the 3rd of May suggested that remortgaging with your current lender – seeking a so-called “product transfer” – is unlikely to cause any problem. If the remortgage involves an increase in your borrowing, however, a re-assessment needs to be made of its affordability, based on your furloughed income of just 80% of normal salary.
Remortgaging with an alternative lender effectively means starting afresh. The lender will need to conduct a thorough assessment of the loan’s affordability – based on your 80% of salary.
If you have been furloughed from your employment, rest assured that the mortgage market remains very much open for business.
Your options may be somewhat more restricted since any affordability assessment is going to be based on the 80% of regular salary you are likely to be receiving under the government’s job retention scheme.
To help you navigate your way through the mortgage deals that remain available, therefore, contact us here at Needing Advice.