31/07/2020
Lenders’ furlough criteria explained
By Leah Milner 30th July 2020 4:10 pm
Online mortgage broker Trussle has compiled a guide to different lenders’ criteria for furloughed applicants.
The scheme is set to come to an end in October and according to recent research from the Resolution Foundation this will put an estimated 1m workers across the UK at risk of unemployment.
The Office for Budget Responsibility has forecast that 3m will be unemployed by the end of the year, which is 12 per cent of the UK workforce.
Different lenders’ approach to applications from furloughed workers varies considerably.
According to Trussle, some lenders such as Virgin Money and Clydesdale Bank, part of the same group, will not accept furloughed income as part of their affordability assessment.
Other lenders such as TSB will only accept furloughed applicants if their income is being topped up by their employer – presumably because this is a sign that the employer is more likely to bring that employee back from furlough.
Certain other lenders will accept furloughed income if applicants have confirmation from their employer that they will be returning to work and a document stating what their salary will be.
Nationwide says that furloughed applicants must be going back to work within the next four weeks and HSBC says borrowers must be returning to work within the next three months.
Both lenders will then consider up to 80 per cent of basic salary in affordability assessments, up to a maximum of £2,500 a month or £30,000 a year.
Income is capped at this level because that is the maximum paid by the government through the furlough scheme.
Many other lenders have less restrictive criteria around furlough than those described above, but will apply the 80 per cent cap on any income used in affordability calculations.
If an applicant’s furloughed salary is being topped up by their employer, they will accept this but require written confirmation from the company.
These lenders include Barclays, Coventry Building Society, Halifax, NatWest, Platform and Santander.
Some lenders like Halifax will consider bonus, commission and overtime income, while HSBC and Coventry will consider up to 50 per cent of these earnings.
However, lenders like Santander, TSB, NatWest, Nationwide and Barclays will not consider any of these earnings which are not guaranteed.
Trussle head of mortgages Miles Robinson says: “There are many uncertainties homeowners and house hunters are facing post-lockdown. The end of the furlough scheme is fast approaching and the deadline on mortgage payment holidays will also be in sight sooner than we think.
“For those looking to get a mortgage, 70 per cent of lenders have tightened their policies on applications from those who have been furloughed.
“As an example, those applying for a 90 per cent loan-to-value mortgage with Metro Bank should be aware that customers who have been or are still on furlough will not be accepted, while TSB will no longer be accepting furlough incomes without top-ups from employers.
“Meanwhile, HSBC has toughened its criteria this week, stating that it will no longer accept income from those who have been furloughed without a return to work date, or a return to work date that is more than three months away.”
