Over 6.3 million employees are currently on furlough leave with reduced salaries – and earlier this month the chancellor announced the scheme would be extended to October. What does this mean for people applying for a mortgage while on furlough?
Lenders are accepting applications and are using the furloughed income, so they will look at the usual basic salary if the employer is making up the difference. Most are only considering overtime, bonus or commission from key workers.
If you had received a mortgage in principle before being furloughed, your lender may write to you to ask if there have been any changes in circumstances.
However, many lenders have extended mortgage offers, so if you haven’t already, you should speak to your advisor to find out the situation for you.
A Linear financial adviser can help with product switches as lenders are accepting switches from current customers whose fixed rate is ending, even if the applicant is on a Covid-19 payment holiday. They will usually allow the switch to be requested three months before the current rate ends (thus securing the new rate) and some (including Halifax, Nationwide and others) will allow the switch to go through early if the client is going onto a lower rate.
What are the major lenders doing?
As examples, here are some of the major lenders policies at the present time (you should speak to your lender or ask your mortgage adviser for the situation relating to you)
If furloughed they will use the customer’s furloughed income for affordability assessment and require confirmation in writing from the employer
They will use the customer’s furloughed income for affordability assessment
If furloughed, they will accept the furloughed income up to a maximum of £2,500 pm. Where the employer will be funding all or part of the difference between the basic income and the furlough payment, they’ll consider using this too with written confirmation from the employer
They will use the customer’s furloughed income for affordability assessment and will consider 100% of income with written confirmation from employer if they are making up the difference
For furloughed employees, they will assess affordability based on 80% of basic income up to a maximum of £30k p.a. gross. Where top-up income is being paid by the employer, the affordability will be based on the level of income being received