The government’s coronavirus Jobs Retention Scheme aims to keep workers employed and paid even if they are out of work during the pandemic. Nearly 27 percent of the British workforce has been furloughed, according to the Office for National Statistics. Express.co.uk spoke to Matt Boyle, mortgage specialist at personal finance comparison site, finder.com, to find out how furlough will impact mortgages.
How does furlough affect a mortgage application?
Thinking about applying for a mortgage? Lenders normally offer you around four times your income but they will also consider whether you are self-employed, your credit score, and your outgoings.
This means mortgage approval is highly dependent on your circumstances.
Mr Boyle said: “It will depend on the mortgage lender you choose.
“While some lenders are still looking at the full-time salary of furloughed workers, others are only looking at their furlough income as if it were an annual salary.
“This means the value of the house you are able to purchase would be lower.
“Additionally, Virgin Money isn’t taking on people who have been furloughed altogether.
“More lenders may adopt these stipulations if the economic situation worsens.”
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Can I apply for a mortgage if I have been furloughed, and should I?
Again, whether or not you can apply for a mortgage depends on the lender.
Matt explained: “Lenders require customers to have a solid source of income to be able to offer them a mortgage.
“Being placed on furlough means you are technically still employed and have money coming in, however the acceptance of your mortgage will depend on the lender.
“Whilst some lenders are not offering deals to those who have been furloughed or who have applied to the self-employed income support scheme, other providers may be willing to accept applications.
“Mortgage lenders tend to like stability and if you are employed in a high-risk industry they may view your application with more caution.”
If you manage to find a lender who will work with you when furloughed, you then have to decide whether or not that is a good idea.
Matt added: “Whether you should apply depends on your personal situation and if you foresee money being short in both the near and distant future it may be worth reconsidering applying for a mortgage.”
What if I already have a mortgage offer?
If you already had a mortgage offer and then were placed on furlough, there is one thing you need to do.
Matt advised: “If you already have a mortgage offer, you should notify your lender about any changes to your financial circumstance.
“If your earnings are now 80 percent of what they were when your mortgage offer was made, it is likely that this may alter how much lenders will be willing to let you borrow.
“It is important that you speak to your lender about your situation, even if your fall in income may only be temporary.”
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What if your employer tops up your wages to 100%?
You might be lucky enough to have your furloughed wages topped up to 100 percent by your employer.
This means you will be being paid the same, but not working.
Matt explained: “Under the government furlough scheme workers will be paid 80 percent or up to £2,500 of their normal monthly wage, although some employers are topping up this amount to 100 percent of their employees’ salaries.
“Whether this gets taken into account will depend on your lender’s furlough policy.
“If they do accept this, you will need to provide evidence that this is the case, to prove your income hasn’t dropped and that you will be able to afford the mortgage payments.”
Do bonuses and commissions count towards the amount you can borrow?
You may have other money saved up or coming in, even though you have been furloughed, making your bank balance just as high as it was before.
Matt said: “Whether or not this counts depends on the lender and the deals they offer.
“Some lenders will offer this option to those whose commission is more than their basic salary.
But, they will limit the amount of commission income they consider to only 100 percent of your basic salary.”
Postpone your purchase
Matt’s final piece of advice was to think about postponing purchasing a home if you have been furloughed.
He said: “If you and/or a partner has been furloughed, it could be worth considering a postponement to your purchase.
“This may not be easy to do if you have a specific home lined up, but if you wait a few months your financial situation may return to normal, which would help the process of getting a mortgage.
“Alternatively, if you are unlucky and lose your job, you might value not having to worry about mortgage payments for the foreseeable future.
“If you already have a mortgage and are struggling to pay it, you could consider a mortgage payment holiday.
“This will cost you more money in the long run though.”
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