Heading back to work – How will furlough affect mortgage applications.
Let me start this article by saying something important. To those of you who are currently worried about the future because you have done months of furlough and lockdowns, been in and out of the workplace and had to deal with everything the world has thrown at us recently, we understand. If, on top of everything else, you are currently asking yourself, ‘will I get a mortgage if I have been on furlough?’ don’t worry, I have some good news in this article. So, why not pause here, go make a cup of tea, then come back, and let’s look at the situation realistically.
Firstly, let me offer some reassurance. Despite the doom and gloom merchants’ predictions of furlough causing a massive problem for mortgages, it’s not as bad as it seems. The furlough situation has caused a hiccup; certainly, that much is true, but a mortgage decision is made based on many different factors, and being furloughed is just one of them.
How being furloughed affects the mortgage process.
There is one immutable guiding principle for how a mortgage application is assessed when it comes right down to it. As we said earlier, there are many factors involved, but basically, they are all working towards one simple end result. A mortgage is only offered to people who can afford it and are likely to continue to be able to afford it for the foreseeable future. The basic rule has not changed, and therefore being on furlough or having just come off is only a factor in that final decision. That said, it would be wrong to give the impression it will not affect your application or influence whether it will be approved. Naturally, it will be taken into account.
Being placed on furlough means that you may find it a little bit harder to get mortgage approval in some cases. However, if you have just returned to work, are back on your original employment contract/status, and prove income and suitability, then there is no reason why it will be a problem in most cases.
If you are still on furlough or recently come off it, though, it could affect your application in some of the following ways.
- Mortgage lenders will look to your income and outgoings. Right now, you may not seem as financially stable or have as much disposable income as in the past.
- You may need to get additional information from your employer with a confirmed return date.
- In some cases, people have had a change in their credit history due to reduced income. This could have resulted in a change in your income-to-debt ratio, which is a significant factor in an application.
- If you waited to apply (which is understandable in the circumstance, but time marches on), you will be a little older on your application.
- In recent months, the housing price boom may mean the property you want is a bit more expensive, and you may need to change your criteria for buying.
- You may find yourself with fewer options for lenders.
But… there are still mortgages available!
What it all means in a practical way.
The good news is that as long as you can afford it and are otherwise eligible, you should still get a mortgage. However, it will be more difficult in some cases, so we suggest the following.
- Talk to us as soon as possible. Don’t worry if you are still furloughed or unsure what is happening with your job going forward, let us start to help you now so that we can get the ball rolling.
- Bring things up to date. If there are fewer options available, then you need to know where you stand. That means the information you have been working on so far could be out of date, so you need to see your current situation.
- Widen your search criteria. The market has changed dramatically in the last year, so you may well need to adapt your expectations on how much you can borrow and what sort of property you can afford.
- Be aware that if you are self-employed, it will probably be a little more difficult. To be clear, I am not saying you will not get a mortgage because if you meet the criteria, then you will. However, it was always slightly harder for self-employed applicants, and with an unsettled year of trading on the balance sheet, it’s not going to be any easier. You will need help and advice to make sure your application reflects an accurate picture of your suitability, so you apply with the optimum potential for being accepted and to a lender who is sympathetic to self-employed applicants.
- Reduce your credit card and other debts as much as you can. In the end it is all going to come down to how much you can afford to pay for your mortgage. The lower your debt, the more you will be able to demonstrate your affordability.
At the end of the day, yes, of course, being on furlough will have an effect. It will potentially change the mortgage options available to you, and it may even mean that you are better to wait a short period before you apply, but it doesn’t mean you will not get a mortgage.
Get in touch to explore your options.
