Being placed on the Coronavirus Job Retention Scheme has knocked the confidence of lots of potential buyers who now worry that lenders won’t accept them if they’re on furlough or have been furloughed in the last year.
The good news is that with the right advice, getting a mortgage in 2021, even if you’ve been furloughed, may still be possible. Read on for more or contact a Mortgage Hut expert to chat now.
What is the furlough scheme and when does it end?
Chancellor Rishi Sunak announced that the Government would pay 80% of furloughed workers' wages, up to £2,500 a month. This was intended to help employers facing difficulties avoid redundancies and keep staff on the payroll.
Almost eight and a half million workers have been enrolled onto the scheme, with claims totalling more than £8bn.
The scheme was initially due to run until June 1, but it has now been extended until at least the end of September, 2021.
Can I get a mortgage if I’ve been on furlough in 2021?
Lenders look at lots of factors when deciding whether to approve a mortgage and stability of income is one of those.
If you’re due to return to work soon and have written confirmation, or have recently gone back to work due to the ease of lockdown restrictions, some lenders may be happy to loan to you.
Your affordability for the amount of mortgage you’ve applied will be a focus for your mortgage lender so if your circumstances suggest that you’re able to make your repayments on time and in full, you will be more likely to gain acceptance.
Mortgage lenders will look at your income vs your outgoings, including regular household bills and any debt repayments such as loans and credit cards, to make sure you have enough left to cover the monthly mortgage repayments.
Key factors that affect furlough mortgage eligibility
The number of deals available to you will be reliant on your circumstances as a whole including:
The amount of money you’re applying to borrow
The type of property you’re buying
The size of your deposit
Your credit history
Your income-to-debt ratio
The predictability of your income
If you’re looking at this list and worrying because you have an issue with one or more of the factors, know that our brokers help people every day with lots of different circumstances, even those with bad credit.
Different lenders are open to different borrowers under different terms and you may not have been lucky enough to come across the right lender yet.
A Mortgage Hut broker can show you the lenders that accept borrowers with circumstances just like yours and can save money where possible during the process too.
I’m still on furlough - can I get a mortgage?
Mortgage applicants that are still on furlough may be able to successfully gain approval for a mortgage but the majority of lenders will view the application with caution.
If there is a risk of the borrower losing their employment or reducing their income, that presents a risk to the lender as you may not be able to afford the loan you’ve applied for.
On the plus side, it’s all about your affordability as a whole, so try to avoid applying for credit in the run-up to applying for a mortgage, especially with multiple lenders within a short space of time.
Lenders can see your credit applications, successful and unsuccessful and use this information to make decisions about whether you meet their affordability criteria.
I have some debt and I’m on furlough, can I get a mortgage?
You might have heard the phrase debt-to-income ratio before. This is something lenders refer to when calculating whether your income is sufficient enough to cover any debt repayments, finance agreements and other expenses, including your future mortgage.
If your debt is deemed as too substantial in relation to your income, the lender is likely to reject your application. If your debt is manageable and the lender determines that adding a mortgage to your expenses is still affordable, your chances of approval may be greater.
Our guide on bad credit can be a helpful read if you have concerns about whether debt could stop you from getting a mortgage but feel free to call us too. We offer free advice either on the phone or via our online chat.
What documents do I need to apply for a mortgage if I’ve been on furlough?
It can also be a good idea to prepare your documents and any necessary paperwork needed for a mortgage application, as this can help speed up the process.
Your broker will use the information provided by you as well as the required legal documentation to check your eligibility for a furlough mortgage.
3 to 6 months of utility bills
Proof of any benefits or pensions received
P60 form from your employer
Your last 3 months’ payslips
Passport or driving license
Bank statements of your current account for the last 3 to 6 months
Can I get a remortgage if I’ve been furloughed?
Mortgage interest rates are low so remortgaging in 2021 could be a great way to cut your monthly repayments, either buy switching with your current lender or a new one.
If you want to remortgage, it's best not to leave it too close to the date of your current fixed-rate or mortgage agreement coming to an end.
At a minimum, three or four months should provide enough time to find and compare your options and then have the remortgage processed.
Will I be able to find a mortgage lender while on furlough?
Your choice of lenders is likely to be reduced too because unfortunately, a reduced income of 80% and the potential threat of job loss could affect your ability to repay your mortgage.
This risk will be too great for some lenders, whereas others may be able to take other factors into consideration such as savings, pensions, benefits you receive.
Some lenders are asking borrowers for confirmation of employment in the form of a contract or letter. Unfortunately some businesses and employers aren’t in a position to predict whether they can keep on staff in the future, so it might not always be possible to do this.
Can I get a joint mortgage with a partner who has been furloughed?
Some UK lenders are refusing to consider furloughed income but will accept the income from a partner if applying for a joint mortgage.
Though this means that your income won’t be included when calculating your borrowing power, meaning the amount you can borrow as a couple will be reduced.
If your pre-furlough salary was £30,000, your furlough income which is 80% of that is £24,000.
Lenders use income multiples ranging between 4.5 - 6.5 to calculate how much they can loan to a borrower.
Pre-covid, with your £30,000 salary, you may have been able to borrow 4.5 x your annual income which would be £135,000.
With your partner’s annual income of £30,000 too, you could both potentially get a joint mortgage for £270,000.
However, with some banks now not accepting income from furlough, a lender would only take the second income from your partner into account, reducing the borrowing amount to £135,000 once again.
Joint mortgages with a furloughed partner are possible though and not all lenders are the same. Some may be completely happy to lend to a furloughed borrower and still accept their income, especially if the return to work date is soon and income will resume to the full 100%.
Should I wait until I’m back in full-time employment before applying?
If your income has reduced, waiting until it has resumed could improve your affordability where lenders are concerned, helping you borrow more and potentially buy a better or bigger property.
Interest rates are low for mortgages so there is something to be said about locking in a competitive rate but ultimately, weighing up the pros and cons of the options that might be available to you could help you to make your decision.
A mortgage broker can calculate how much you can borrow with different lenders, under different scenarios.
They’ll also look at the terms and conditions of mortgage contracts closely while looking at factors such as incentives and fees, all to present you with a selection of lenders either to approach now with guidance or to bear in mind for the future when your circumstances change.
Can I buy a second property if I’ve been furloughed?
Furloughed workers looking to buy a second property will face far fewer mortgage options but good interest rates can be found in some circumstances.
Lending criteria varies but some banks may be happy to lend to you if a larger deposit is paid.
There are also lenders in the UK that accept equity from one property as security for a second loan, though this is obviously an option with much greater financial risk, so always seek independent financial advice and discuss your options carefully with a mortgage broker.
Contact a mortgage broker about getting a mortgage while on furlough
Being on furlough doesn’t mean your hopes of homeownership are over.
Even if you decide to wait until your income is back to 100%, finding out more about the process of applying for a mortgage can help prepare you for when that moment comes.
Our advisors can help you with tips on how to get the best rates for a mortgage after furlough and can help you improve your credit score to put you in the best position for applying for a mortgage.
Call 023 8098 0304 or make an enquiry. We won’t bombard you with nonsense but we will help you find a mortgage, with or without furlough.