So with the prospect of several more months of lockdown ahead of us and with many people dependent on the Furlough scheme to ensure they continue to get money coming in, how does this impact the mortgage industry and more importantly how does it affect those looking to purchase a property in the coming months.
The following advice has been put together by Pete Mugleston, mortgage advisor and MD at www.onlinemortgageadvisor.co.uk to try and ease concerns.
If you’re off furlough and back to work
If you’ve been taken off furlough and are now back in full time work, there shouldn’t be many issues when sending in a mortgage application. However, if you’ve only just started back at work and plan to purchase a property, your lender may proceed with caution as being furloughed previous could indicate to them that your role is under threat of redundancy in the future.
It will be harder to have a successful application
A key factor that banks look for when assessing a mortgage is a stable income. During furlough, the government has paid between 60-80% of a workers income, with the option for an employer to top up the remaining amount. Some banks will not consider furlough payments as a reliable or sustainable form of income, although others may have exceptions, so it’s really important to consult an expert broker and find out which lenders can consider your situation, as thankfully, there are several out there.
There may be fewer mortgage options if successful
If you are successful with an application because there are fewer lenders, you may be faced with fewer, more restrictive, mortgage options to choose from. It is also likely that you’ll be required to put down a larger deposit, depending on the maximum loan-to-value that the lender is willing to provide. However, if your partner has as full, non-furloughed income which can carry the weight of the application, you should find a wider range of options to choose from.
A challenge for the self-employed
Attempting to secure a mortgage whilst self-employed was already a difficult enough task prior to the pandemic, so under the circumstances, it is even more of a challenge for those without a stable and regular income. Lenders now struggle to evidence what an ongoing and sustainable business looks like in the current climate, with some firms struggling temporarily that are sure to recover, and others booming but from a market that might be short lived when things return to normal. The Government’s support options such as CBILS loans, bounceback loans, and the Self Employment Income Support Scheme (SEISS) which helped the self-employed by paying them 80% of their three-month income in one lump sum, have been key to many businesses surviving. Subsequently, some lenders believe that when an individual or business requested these, it could be a confession that they were financially struggling, and so won’t accept any mortgage applications from those who applied. Some lenders on the other hand will allow you to explain the reason you applied for the grant and will decide on whether to accept your application.
If you’ve already taken out a mortgage and it’s coming to the end of its fixed term, you should be able to stay with the same lender and switch mortgages regardless of whether you’ve been furloughed or not. As long as you’re not applying to borrow more money, it should be fine to switch to a new deal without the need for another assessment. However, it will be more difficult to switch to a new lender, so it’s best to stick to your current one if you can.
Obviously, advice during this current climate is changing all the time. Asset Harbour can independently look at your situation and find the best lender that accepts your income and your situation. Give our advisors a call on 01276 986333 for more information