Millions of UK employees have been on furlough and you may be wondering how it can affect your chances of getting a mortgage. This is understandable, as being on furlough will often mean that your salary has been reduced. As a result, applying for a mortgage after furlough isn’t straightforward and you should take careful steps before applying.
The good news is that lenders are fully aware of the coronavirus retention scheme which allows employees to be furloughed. Rather than receiving your full salary, you’ve only been receiving 80%, which is capped up to £2,500 a month.
Many borrowers had mortgages agreed in principle before they went on furlough. Furthermore, you may have just returned to work and need more information about getting a mortgage after being furloughed.
We’ll explain how you can get a mortgage after being furloughed and how best to prepare your application. Our advisors are also available to help you further.
Can I get a mortgage if I’ve been furloughed?
Getting a mortgage after furlough is possible. That being said, you’ll want to speak to an advisor before applying. This is because the mortgage amount you’re offered may be lower than you anticipated, due to the lower income you received during your furlough.
Being on furloughed leave also means very different things for each person. For instance, you may have simply received your salary through the government furlough scheme. On the other hand, your employer may have topped your salary up so your earnings weren’t affected.
Each lender assesses applicants in their own unique way. While one lender may be very strict, other lenders may offer more flexibility towards your mortgage. This is especially true if you’ve returned to work and are now back on your full-time salary.
If your employer has not yet requested you to return to work full time, it may be better to wait until they do before applying for a mortgage.
Having an AIP before going on furlough
If you were approved an AIP (agreement in principle) before you were placed on furloughed leave, your situation becomes quite complex. This is because you were promised a mortgage amount in principle prior to the pandemic.
Some lenders will insist that another application is made using your furloughed income figures. On the other hand, lenders that offer more flexibility may decide that you’re able to borrow the amount you were originally promised.
Lenders may assess your overall application further. For instance, have you now returned to full-time employment and is your income sustainable and long-term? This is crucial as lenders need to be sure you’re able to repay your mortgage and that furlough was temporary.
Lenders would have based their initial decision for your AIP on your income when you initially applied. If you’ve been furloughed or now have a reduced income, then it’s likely your lender will want to carry out their checks once again to determine your affordability level.
Having an advisor help you can also work wonders towards getting a mortgage. This is because we’re able to talk to lenders and their respective underwriters to determine exactly what the issues are. We’re often then able to clear any discrepancies or worries that lenders may have.
These are uncharted waters for both lenders and applicants. That’s why it’s perhaps easier to work with your lender to come to a decision that’s mutually beneficial. That being said, there’s nothing stopping you from going to a different lender if the option is there. This may make better financial sense, especially if you’re able to borrow more at a better rate.
Could I be declined because of being on furlough?
Lenders have changed many of their products recently, such as not lending on 95% LTV mortgages. Nonetheless, lenders do seem to be coming back into this market, particularly on the Help to Buy equity loan scheme.
If you have been declined a mortgage due to being on furlough, it’s likely your lender was unsure on your affordability or job security. If you’re still furloughed, there will be fewer lenders you’ll be able to approach. This is why it’s perhaps better to wait until you’re back in full-time employment before applying for a mortgage.
Lenders may also be unsure of whether you’ll go back to full-time work. This can cause mortgage applications to be declined specifically because of furloughed leave. Many employers are cutting jobs and releasing employees which lenders are fully aware of. Documenting your job security can help your application and give lenders confidence in your income and ability to repay your mortgage.
If you’ve missed mortgage payments during your furloughed leave and wish to remortgage or buy a second home, it can be difficult. Nonetheless, if your lender is aware of why you missed a payment and have since repaid it, it can help your application.
Can I still get a good mortgage rate if I’ve been furloughed?
If you’re worried about paying over the odds as a result of your furloughed leave, speak to an advisor. You may be advised to save up a slightly higher deposit. This is because higher deposits will bring down your LTV (loan to value) which should give you access to more lenders. You’ll then be able to pick and choose the deal you want to apply for.
Nonetheless, you may already have an adequate deposit to qualify for a great mortgage deal. The main issue surrounding furlough is your reduced income. While this won’t impact the rates you’re offered, it will impact the amount you’re able to borrow.
Being furloughed is also just one of many factors your lender will assess you on. There are other factors such as having bad credit that can impact the rates you’re offered.
Should I wait until I’m back in full-time employment before applying?
If your income has been affected by furloughed leave, it may be beneficial to wait until you’re back in full-time employment before applying for a mortgage. This is because once you do go back to full-time work, your salary should also increase which will help your application.
If you’ve not gone back to work but have a letter or document from your employer in reference to you returning to work, this can also help your application. This is especially true if you have a document showing that your salary will be more than your furloughed income. Alternatively, you may have a document which shows your income will be returning to normal and above the furloughed amount.
Some lenders may allow you to use your full salary on your application as opposed to your furloughed income. This can be useful for when you need a mortgage but haven’t quite yet gone back to work. Nonetheless, if you’re able to show a lender that your income and employment is secure, you may not have to wait before applying.
Not all lenders will entertain this situation. A lot of lenders, including high-street lenders, will still only assess your application based on your furloughed income. This is why it’s a good idea to check with an advisor before applying.
What to do next
Lenders are facing a multitude of applicants that have been on furloughed leave which isn’t something they’ve had an experience of before. The good news is that some lenders are flexible and understood that furlough was a temporary situation and you’ll be returning to full-time work very soon.
Some lenders are better placed than others for mortgages after furlough. This is because they’ve taken a more flexible approach than other lenders.
As an applicant yourself, it’s impossible to tell which lenders will be more likely to say yes. That’s why it makes sense to speak to an advisor who has been working with applicants on furlough and helping prepare their mortgage applications. We’ll then be able to guide you further as to which lenders to apply with and the rates you’re likely to be offered.