Have you recently returned to work after being on furlough? If so, what does this mean for your chances of getting a mortgage?
It is estimated that there are around 1.9 million people in the UK currently on furlough, which has gone down from 5.1 million in January. The furlough scheme comes to an end on 30 September and is being gradually phased out, with employers now having to contribute more towards the cost of wages. In July, employers were paying ten per cent of salaries and the government was paying 70 per cent. In August and September, the government is paying 60 per cent of wages and employers have to pay 20 per cent.
You may have been furloughed at some point this year and have either just returned to work or are about to do so. If you have your sights set on remortgaging, moving house, or getting onto the property ladder for the first time, what are your chances of getting a mortgage? Will lenders consider your application?
MB Associates’ mortgage adviser, Shaun De Moura, says: ‘Lenders have gradually become more accepting of previously furloughed applications, as long as clients have now returned to work full-time. Some lenders require three months’ worth of payslips showing the normal full-time income but there are lenders who would work with just one payslip.’
When it comes to overtime and other additional income, the situation becomes more complex. ‘Where it gets slightly more complicated is for clients who would usually have secondary income like overtime, commission, or a bonus to make up their income,’ says Shaun. ‘As a general rule of thumb, lenders will take an average of the previous three months’ payslips to work on an acceptable annual figure to use as part of the total assessable income. Depending on the industry the client works in, it may be difficult to provide proof of sustainable additional income if they have only recently returned to work, but this is where speaking with an adviser will help. Advisers have access to business development managers, who in turn, can talk through aspects of cases with underwriters for scenarios that may technically be outside of standard criteria but have merit and a good history of earning the additional income pre-Covid.’
Unfortunately, there have been rumours of some banks refusing to lend to self-employed workers who have received grants during the pandemic. It’s an unfortunate situation for those affected, especially as the situation was clearly not of their own making. If you are self-employed and you need advice on your mortgage options, feel free to speak to MB Associates. Having a grant may not be an issue as lenders can view situations differently.
‘Self-employed applications don’t need to be a taboo and there are lenders who would still consider applications from clients who may have had SEISS grants or bounce back loans,’ adds Shaun. ‘Again, the relationship and contacts that advisers have to speak to multiple business development teams can help save clients time in researching all the options and which lenders would be best to speak to. The team at MB Associates has completed many self-employed applications throughout the pandemic and there is no “one size fits all” approach with lenders.’
A lender will take many factors into account when deciding whether or not to offer you a mortgage. They will typically want to see that you have a reliable, regular source of income and will also look at your income versus your expenditure when assessing your eligibility. The amount of deposit you have available will also make a difference – the higher your deposit the more likely you are to get a competitive interest rate if you are approved for a mortgage loan. Lenders will also want to see up to three months’ worth of bank statements.
They will also look at your age, how much you want to borrow, your deposit, your credit history, and your income-to-debt ratio (the percentage of your gross monthly income that goes towards paying your monthly bills). If you have had a strong credit history in the past and being furloughed or taking a Covid-related grant has been your first experience of borrowing or needing financial help, this may stand you in good stead. It will depend on the lender.
Overall, it’s worth remembering that lenders will assess you in their own way. Some are more flexible than others. Being on furlough in the past could reduce your options. The amount you may be able to borrow could be less if you earned less while furloughed. If you were earning 80 per cent of your salary, then this amount of income would be considered by a lender. However, if you were earning 100 per cent of your salary because your employer chose to top up the shortfall then you would be able to borrow based on your normal earnings.
MB Associates is here to help, and we can also advise you on the paperwork you’ll need to pull together in order to apply for a mortgage.