The Government Job Retention scheme has had a welcome impact for both employers and employees, but if you've recently been furloughed, and you were previously considering a home loan application, you'll no doubt have questions over how this drop in income will impact how much you can borrow.
Can I still obtain a mortgage if I have been furloughed?
Being furloughed doesn't have to signal no more your mortgage application. Over the past little while, a lot of the big lenders have confirmed they will continue to accept mortgage applications when you have been furloughed.
In fact, recent research from property market intelligence company, Dataloft, revealed that 77% of lenders expect lending to return to pre-pandemic levels within nine months.
However, you need to observe that applying for a home loan whilst you continue to be currently furloughed might have an impact on how much you are able to borrow.
Will I be able to borrow less because I'm furloughed?
The simple is absolutely. With regards to mortgage calculations, affordability is exercised based on how much you're earning during the time of the application, and this is often somewhere between four and five times your earnings – and if you're currently furloughed and receiving 80% of the normal income, naturally you can borrow less.
If your employer has had the decision to top-up your earnings, make payment on remaining 20% themselves, this might or might not be taken into account. Many lenders were ignoring this, however, HSBC and Barclays have recently emerge and said they'll note this, meaning others may follow their lead, but don't make assumptions. Check with your individual mortgage broker.
The same applies to things like commission, overtime and bonus payments . Whilst this could normally be taken into consideration in what you can borrow, and lots of lenders have finally said they will keep this in mind, some have paused accepting variable income.
It's important too to understand that income isn't the only factor in calculating how much you can borrow. All elements play a role, such as your credit rating, your outgoings and whether you're self-employed for instance.
Should I pause my mortgage application?
Because it has a direct impact on what you could borrow, and because it's a temporary situation, you might be recommended to hang about until you're earning your full wage again.
This is particularly highly relevant to first-time buyers and people looking to remortgage.
Unfortunately, first-time buyers could also end up needing to save larger deposits, having a number of lenders pulling 5% deals.
It doesn't affect existing homeowners just as much, because they should already have equity in their property, so they'll need to borrow less.
However, new developments are visiting light all the time, with different lenders updating their stance. Each case is individual too, therefore it pays – literally – to speak to an intermediary who are able to offer you the very best options for your personal situation, in addition to source the best deals for you personally.
How to enhance your credit rating despite being furloughed
If you've been furloughed, you may still be a good mortgage applicant – in the end, stats from the ONS suggest more than a quarter from the UK workforce have been furloughed. As stated before, there are a variety of factors which dictate your lending, and one of these is the credit score.
Review your outgoings, and cancel any you don't need, for example subscriptions you don't need, use, or could do without, whether that's a gym membership you have not used for 9 months, extra data on your phone you could cut down on, or perhaps luxuries.
You may also make use of this time for you to draw up your incomings and outgoings and making a stricter schedule to stick to, cutting down on expenses for example takeaways or taxis. If you are self-employed, you might want to make use of this period to ensure all your records are current, so you're in the very best position to prove your ability to meet regular mortgage payments.
In a nutshell, being furloughed doesn't have to hamper your plans to become a house owner; it might just delay them just a little, during which time you may make sure you're fully prepared. If you are an existing homeowner, you may be able to continue with your plans normally.