The furlough scheme has been extended again and around 15 per cent of the UK workforce are currently on furlough leave. Where do you stand in terms of getting a mortgage if you’ve been affected?
Since the pandemic took hold of the UK in March, we’ve been keeping you up to date with the situation on getting a mortgage while furloughed. In June, we mentioned that you could still apply for a mortgage if you were on furlough so long as your employer could confirm that you would be going back to work. However, lenders have had to deal with increased mortgage applications as well as adapting to changing circumstances on a regular basis. To say it’s been an unpredictable time for everyone would be a huge understatement.
Last week, Chancellor Rishi Sunak announced that he is extending the furlough scheme until the end of April 2021. The Chancellor is also extending the government loan guarantees for businesses to support firms during this challenging time.
Job Retention Scheme
The Coronavirus Job Retention Scheme will run for another month paying 80 per cent of salaries. Figures published by the Office for National Statistics showed that just over five million people are currently on furlough (around 15.5 per cent of the workforce).
A fourth grant for the self-employed under the Self-Employment Income Support Scheme will also be available from February to April 2021.
Of course it’s been a tough time for many people. Some Brits are struggling to manage their finances. A poll of just over 6000 people conducted by ICM Unlimited for Citizens Advice showed that 24 per cent of those furloughed have fallen behind on bills or rent. Some 14 per cent have fallen behind on essential bills such as energy, water, mobile phone and broadband costs.
As many as 62 per cent of the population who have got into debt due to the pandemic believe they should get help from the government to pay back what they owe.
As for the economy, despite Britain being the first country to start vaccinations, we have been slower than other nations to spend money on social activities and return to work. It seems that Brits are more cautious than other nations and this may have an effect on the pace of our economic recovery.
If you are thinking of moving house and have either been on furlough or are still furloughed, where do you stand? At present, it’s a complex question and certainly one that has been widely debated among prospective buyers.
According to the website, This is Money, the number of UK workers seeking a furlough-friendly mortgage during November increased dramatically. Searches for mortgage products suitable for furloughed applicants rose by 230 per cent between October and November. A spokesman for Legal & General Mortgage Club says that more borrowers are seeking advice from mortgage experts.
If you are currently on furlough and you would like to apply for a mortgage, you may find it difficult to get one. Most lenders have not accepted furlough income according to L&C Mortgages. Even if you can prove you will be going back to work in the near future, some will be cautious about your job situation.
Borrowing on furlough
In essence, many lenders are reluctant to lend if you are currently furloughed. Some will insist that you must have been back at work for at least a month and will want to see a recent monthly payslip. Others may take a more cautious view of your application and will want to ensure that your work situation is stable and your job is not under threat. Inevitably, some lenders will be more risk-averse than others.
If you want to remortgage while on furlough, your existing lender should be able to switch you to a new deal. It might be better to stay with your current lender rather than seeking to remortgage with someone else.
Some lenders might make you an offer based on your pre-furlough wages. However, they are likely to request written confirmation that you are returning to work, or have returned to work, on your full salary. Other lenders may offer you a mortgage based on 80 per cent of your normal salary. However, if your employer is topping up the 20 per cent shortfall you may be offered a mortgage based on your full income.
We strongly recommend that you to speak to a reputable mortgage broker for advice who will have access to a range of lenders and will know what the criteria will be for each of them. They will be able to suggest your best course of action. We’re here to help so please get in touch if you need to discuss getting a mortgage or applying for a remortgage.