Furlough v Mortgages

 

Where to start?

 

Well, if you are looking for a mortgage and you have received furlough within the last three months on your payslip, you can pretty much forget about applying for a mortgage.

 

Bit blunt? That may be but I have literally been banging my head against a brick wall for my clients for the last few weeks. Have come to the unfortunate conclusion that there is no way around it. I cannot imagine how many people this has affected and is going to continue to affect.

 

Criteria usually when it comes to income. 

Each mortgage lender (and we have a ton to choose from) has differing conditions that they will ask you to fulfil when applying for a mortgage. Now usually this will be whether you are employed or self-employed, how your income each month hits your bank account and what that is made up of.  Net pay, regular overtime, commission, bonus… If you have any other income from any other sources. What your monthly deductions are before and after-tax.

If you are self-employed you will need a combination of evidence, at least two years SA302’s, or your accountant's tax calculation, HMRC Tax Year Overview, an online printout from the HMRC website showing a breakdown of your income.  This can be just for starters they might request more, but each case is different, so I’ll not go on about this too much.

What they are doing is satisfying themselves (this is also for your benefit too) that you can afford to take on the debt, and why wouldn’t they, this is the largest debt you are likely to have.

 

It can seem complicated and confusing, but that is why it's always recommended that you use a broker. Banks will be and should be helpful, but you are massively limiting yourself to the type of mortgage products that they have on offer. There might be advantages to using your own bank, they may well need less evidence as you already have a relationship with them, but should you get a no from them, the search for an affordable mortgage is not necessarily over…

 

Now throw in furlough, grants and a pandemic.

 

I have been furloughed and want to apply for a mortgage, what do I need to do?

Lenders will probably not accept furlough pay on payslips.

So, this is what you will need to do. 

If you are employed and have a back to work date, you could get a letter from your employer with details of your restart pay, the date that you are due to start and working hours, but this will limit your selection of who you can use as a lender as there aren’t many that will accept this, plus you will probably need a full months wage slip showing full pay and no furlough even with the letter.

So, say you go back to work on April the 12th, you will need May’s full payslip.

If you need to use commission, overtime, or bonuses, you will need three months of clear pay, with no furlough pay included and that regular extra pay showing.

In this case, you are looking at May/June/July’s payslips.

Again, depending on who you go with, some lenders will use 100% of your extra pay associated with your main income or a portion of it (this varies from 30% to 50%) taken from an average of the last three months’ pay.

If you are self-employed it’s a similar story too, 3 months usual trading and earnings and as I said before at least two years accounts and HMRC evidence of income such as an online print out or SA302 etc.

 

What does this mean for me?

 

Unfortunately, it means you are going to have to wait it out.  Best case scenario, if employed and with a solid back to work date, you could be looking at end of May, worst case, end of July.

Plus, this all depends on the road map out of the pandemic staying like it is.

Another important point to not forget is that the lenders change their criteria all the time, things have and often will change from week to week, so keep us in mind, we will keep our page and social media updated.

Of course, some industries won’t be returning to their full potential until all the restrictions are lifted before this summer.

Patience I think is the key to this. Hang on to your sanity. You are not alone; this is affecting so many people and I have been trying to help my clients out as much as I can. One is using the time to get her finances in order and sorted so she is in a good position to hit the green light come to the end of the summer, at least fingers crossed we have a great summer to look forward to.

I think it’s going to be a fabulous one (there I’ve said it now, but positive thinking, don’t come at me if it doesn’t happen)!

                                                                    

Get in contact, we'd be happy to chat.