If you are once again on furlough or are receiving self-employed support there are limited mortgage options - but it doesn't mean you have reached a dead end. Greg Cunnington, our Director of Lender Relationships and New Homes, talks you through some solutions.
In November, the government confirmed the furlough scheme was to be extended until 31 March 2021. Previously, it was due to end in October.
The chancellor Rishi Sunak also announced a new increased grant for those who are self-employed and whose income has been materially affected by the current pandemic.
This coincided with the lockdown in England then the switch to a tier system, meaning some clients are now worried they may be on furlough and are wondering if this will affect their new or existing mortgage application.
Many buyers have, naturally, been very anxious as to what the new measures mean for their purchase and we will look to cover these concerns in this article.
Can I still get a mortgage if on furlough?
As we covered in our previous article, during the initial furlough scheme period most mortgage lenders would still accept applications from clients on furlough.
However, as the scheme was coming to an end most lenders changed their policy and made it a requirement for borrowers to be back at work. They must supply a letter from their employer or the latest payslip to provide evidence of their full salary.
What we have seen recently are a lot of the major lenders being more cautious around this furlough period, and they have not reversed this requirement to have returned to work and come off furlough.
As such, you may find that your bank tells you that you cannot get a mortgage now until you have returned from furlough and can show them a payslip to evidence this.
The Good News
The good news is that there are some lenders which will lend to clients receiving furlough income.
These lenders are typically smaller banks or building societies, which often work with intermediaries only. As such, you should ensure you are working with an intermediary such as ourselves which has access to as wide an array of lenders as possible. This will ensure the best mortgage option for your circumstances will be found.
There are also some caveats to lenders’ criteria of which clients on furlough should be aware.
For example, some lenders have a maximum loan-to-value of 70% for clients who are on furlough currently – this means you would need to put down a 30% deposit on a purchase to be eligible.
An intermediary will be able to navigate through the maze of options for you here.
How furlough income is assessed
The lenders who still accept applications using furlough income will typically assess affordability based on 80% of the normal income – this is to ensure it is in line with the income you will receive from the job retention scheme.
As such, if your normal salary is £20,000 and you are currently receiving £16,000 from the scheme, then mortgage lenders will use £16,000 as your income when assessing the borrowing for the new mortgage.
Some lenders have now confirmed, where the employer is topping up your income to 100% of your normal salary, this can all be taken into account for your mortgage application. Evidence of this additional income will be required.
So if you are currently furloughed but your employer is still paying you your full £20,000 salary (i.e. they are topping up the funding from the furlough scheme), then we have access to lenders that will use the £20,000 as your income figure when assessing the borrowing.
However, only a very limited number of lenders are still accepting furlough income and will accept the full income, so it’s really important you speak to a good adviser with access to as many lenders as possible to ensure this will be an option for you, taking into account the rest of your own individual circumstances.
This also applies to those who are on furlough but earn above the furlough limit of £2,500 per month, and are being topped up by their employer. So if you earn £50,000 per annum, and are currently furloughed but still receiving your normal salary as your employer is topping this up, we have lenders which are happy to use this income for your mortgage application.
The UK government has also extended the period self-employed individuals can claim the SEISS (self-employed income support scheme) grant until March 2021.
Some lenders take the view that to have taken this grant means a person has confirmed they are struggling financially, and so will not accept mortgage applications from these clients.
NatWest announced last week it will no longer accept applications from any borrower who has received the SEISS grant since July.
The good news is some other lenders take a more nuanced view.
Where a good explanation can be given as to why you took the grant, supported by business bank statements showing the business turnover is transacting at close to normal levels, we can speak to the decision makers at lenders to get your scenario approved still and you can apply for a mortgage as normal.
Where you are on furlough, or self-employed, a mortgage lender will typically carry out a manual assessment on your application (as they are deemed higher risk in the current climate).
These more detailed manual assessments mean that we are seeing longer application processing for these clients. Current timeframes of up to 15 working days for an initial assessment are common with some of the larger lenders, compared to less than five working days prior to lockdown.
How an intermediary can help
A good intermediary will monitor each lender’s current timeframes. As such, if your purchase or remortgage application needs to move quickly, which is very important right now to ensure your purchase is done before the stamp duty holiday comes to an end next year, we can ensure your application is submitted with an appropriate lender based on their current service levels.
We also know which lenders will require a more detailed manual assessment based on your scenario, so we can advise accordingly here also.
Most importantly, we have exclusive access to the decision makers and escalated service teams with many lenders.
This means that by using an intermediary such as ourselves your application will be reviewed quicker than if you use a lender directly, and also that if any issues arise we are on hand to help smooth these through with the lender to avoid long delays.
Please get in touch with us if you need any further advice. You can email us at AskAlexanderHall@alexanderhall.co.uk or use the contact us page on our website – click here.
This article was originally posted in What Mortgage online. You can see the original article here. Please note this will launch a new web page.