If you were about to apply for a mortgage or remortgage when you were furloughed, or if you were in the middle of a purchase, you may be concerned about where you stand. Our insight should help…
You’ve worked hard and saved even harder to buy your dream home, and now you’ve been furloughed from work. Can you still get a mortgage? It’s a question that’s going to be asked by many. At the time of writing, over 7.5 million Brits have had their income reduced to 80 per cent of their full salary under the coronavirus retention scheme. However, the maximum amount you can earn under the scheme has been capped at £2500 per month, so higher earners may be more significantly affected.
Can you get a mortgage if you’ve been furloughed?
Where do you stand if you want to apply for a mortgage, or a remortgage, if you are only earning 80 per cent of your usual income?
In short, you can still apply for a mortgage. Many lenders will be glad to accept written confirmation from your employer that you will be able to return to work. However, you can only borrow based on what you are currently earning, so if you are earning 80 per cent of your usual salary, this income level will be taken into consideration by lenders. However, if your employer is topping up your income with the 20 per cent shortfall, lenders will include this amount in your mortgage application. Again, they will ask your employer to confirm this in writing.
With the government imposing a maximum income of £2500 per month on furloughed workers, higher earners may be unable to borrow as much as they would have been able to beforehand. Even if you can find a higher deposit amount, your income is still only 80 per cent of your usual salary, unless your employer is topping up the shortfall. So if you had your heart set on a more expensive property, you may want to hold back until the furlough scheme ends and your normal earnings have resumed.
Talk to your employer about the future
It’s advisable to talk to your employer and check where you are likely to stand in the next few months. The furlough scheme has been extended and there are changes coming that may affect your mortgage application. From September, the state will pay your employer 70 per cent of your salary, or up to £2190 per month. Your employer will need to cover ten per cent of your salary to bring your income up to 80 per cent of your normal earnings. From October, the government will pay 60 per cent of your salary, or up to £1875 per month. Your employer will need to cover 20 per cent of your salary, again to bring your earnings back up to 80 per cent. As these changes are occurring later in the year, It’s important to communicate with your employer and find out where you stand going forwards. Again, remember if you are only earning 80 per cent of your normal income, you will only be able to obtain a mortgage based on that 80 per cent.
Will lenders consider bonus and overtime amounts?
Under normal circumstances, lenders would normally take bonuses and overtime payments into consideration. However, at the present time, many are reluctant to factor these additional earnings in as they may not be regular income.
If you had a mortgage offer confirmed before you were furloughed from work, lenders have said they will extend offers by three months if a property purchase has been delayed. However, they may write to you to ask if your situation has changed. If you have been furloughed, you should notify the lender. They could choose to rewrite, reduce or withdraw the application if your circumstances have changed, so it’s important to address the situation now and find out where you stand.
What if you want to remortgage?
What if your current mortgage deal is coming to an end and you want to remortgage? You could switch to another product with your current lender. This is known as a product transfer and you’ll be able to do this by contacting a member of our friendly team who can arrange this for you. According to consumer website Which?, ten of the UK’s biggest mortgage lenders have confirmed that existing customers remortgaging on a like-for-like basis won’t need to have their income assessed. However, if you want to borrow more, you may struggle to do this if you’ve been furloughed.
There are many different scenarios, so we recommend talking to a mortgage broker and getting some advice to suit your personal situation.