Thousands of people applying for a mortgage were left wondering what would happen to their applications and whether they’d ever get to exchange contracts while employees who were on the brink of applying for a mortgage now face fear of rejection.
But there is hope and now that the UK property market is open, lender confidence is growing and the range of mortgage products and rates is returning.
We’ve answered the key questions surrounding the furlough scheme and how it could affect your ability to borrow for a mortgage, with practical tips on what you can do to prepare and improve your application.
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 totaling 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 October, 2020.
Can I apply for a mortgage if I’m still on furlough?
Applying for a mortgage while on furlough may be possible in some instances, though your affordability and income will affect the size of your mortgage and the rate of interest you may be charged.
Lenders are likely to only take into account the income that you have been furloughed on and because the furlough scheme pays out 80% of your salary, lenders might be hesitant about approving your application.
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 my partner’s income help us get a mortgage?
If you’re applying for a joint mortgage i.e. a mortgage with another person such as your partner or a parent, lenders will assess both incomes to calculate the maximum amount they’re willing to offer.
It’s not always the case but two incomes can be better than one. That’s because if one of you were to lose your job or become furloughed, the other could potentially pay for the mortgage with their wages. Of course, your other outgoings and the size of your partner’s income will play a part in the decision process for most lenders.
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.
Can my employer top up my income?
Your employer isn’t legally obliged to top up your income if you are currently on the furlough scheme, though some employers have taken the decision to do this where possible.
What happens if you’ve been furloughed during a mortgage application?
If you have a mortgage in principle and have received an offer before being furloughed, then the decision depends on your lender's appetite to lend under the current circumstances.
The application could be re-underwritten, reduced or withdrawn as a result and even though a mortgage offer should be binding, some lenders are writing to borrowers to ask for confirmation that there has been no change of circumstances such as a pay cut or furloughing.
Practical things you can do to help your mortgage application during furlough
Find your ID
There are a few things you’ll need to apply for a mortgage in the UK including a photo ID in the form of your passport or driver’s licence
Go through your bank statements
This probably isn’t going to be top of your list but it’s necessary nevertheless.
Lenders usually ask for three months’ bank statements though some may require up to two years in some circumstances, so login to your online banking and download your bank statements in preparation.
While you’re doing that, it can be handy to go through your spending and highlight any areas where you could cut down or save money. Every little helps really is the case when it comes to saving for a mortgage and if you’ve been furloughed, perhaps even more so.
Gather your payslips
Most lenders will ask for 3 months to a year’s payslips, though there are exceptions to this rule. File them in order in a presentable state, ready to be reviewed by your lender when the time comes.
Check and build your credit score
You might not even be aware of all the little things that can affect a credit score, like registering to vote or using how much of your available credit you’re using, often called 'credit utilisation' by lenders
Your credit report will be visible to lenders when they run a credit check on you, so knowing what your score is ahead of applying for a mortgage can help you to improve it.
Furlough mortgage questions answered
If there’s an area that we haven’t covered or you’re wondering what your chances of approval are after being furloughed, please get in touch and we’ll be happy to help.