Furlough

What is the furlough scheme?

Many workers have had their working lives put on hold thanks to the COVID-19 pandemic, with offices, leisure and retail premises closed. With businesses finding their revenue reduced to almost nil, the government created the furlough scheme to help businesses retain their staff and avoid mass redundancies. When an employee is put on furlough, a proportion of their salary is paid for by the government. Employers are able to choose whether to “top up” this amount to equal their normal monthly salary.

The scheme was initially due to finish in June 2021, but has since been extended until at least the end of September 2021. 

What does this mean for mortgages?

Some applicants have had an unpleasant surprise: mortgage applications they thought were a "done deal" have suddenly been declined. Some lenders have decided not to consider furlough income as part of their affordability criteria. Others will only include this income if the employer tops it up to the previous salary level. This action is being interpreted as a sign that the business is in a more stable position, and the worker is more likely to have a job to return to.

Some lenders have set criteria on when a worker needs to return to work for their furlough income to be considered. If your employer has not given you a start date yet, or if the date is too far in the future, your application could be denied.

However, many other lenders are treating furlough income exactly the same as your salary. If you’re under any doubt, it’s highly recommended that you speak with a mortgage broker so that you have the best possible chance of your application being accepted.

What if much of my earnings come from commission, or overtime?

For many people, their official salary is only one part of their earnings. Regular overtime or sales bonuses often make up a significant proportion of people's salaries. With COVID impacting these non-contractual sources of income, some lenders have elected to exclude these earnings in their affordability review. Others will only consider a percentage of these earnings, such as 50%.

With some lenders only accepting a percentage of your income in their affordability asessment, you may not be able to borrow as much as you planned.

Do furloughed workers have the same access to mortgages?

Some lenders are limiting the loan-to-value rates available to people who have been put on furlough. This means that you would need a larger deposit than you may have done previously, up to a steep 40% for some lenders, however, you may still find deals up to 80% LTV. 

Lower loan-to-value means that you may not be able to borrow as much as you thought you could.

Is there anything I can do to support my application if I am on furlough?

Firstly, speak to your employer. It will help your application if your employer can provide a letter confirming:

• A date you will start work again
• The type of contract you will be on (i.e. part-time or full-time)
• Your salary

Many lenders are using a more human approach to reviewing applications, rather than the automated processes that were relied on in the past. This gives you more of an opportunity to explain your case.

Secondly, speak to a broker. With every lender creating their own guidance, it can be very difficult to establish whether your’re likely to be accepted for the mortgage you’re looking at. A broker will understand each lender’s latest acceptability criteria and be able to steer you to the lender most likely to accept your application.

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