Mortgage lenders have changed their lending policies, as anticipated by brokers, ahead of the government’s furlough scheme coming to a close next month.
Accord Mortgages, for example, is no longer accepting lending applications from clients on furlough as of September 1.
In the week before (August 26) Clydesdale Bank made temporary changes to its lending policy, whereby the income of an employed customer on furlough will not be used in an affordability assessment.
TSB has implemented similar temporary changes to how it assesses income, as a result of the coronavirus. According to its website, where an employed applicant is on the coronavirus job retention scheme, income will not be used for assessment of affordability whether topped up or not.
If an applicant has returned to work on part time hours but also receives furloughed income, the income relating to the part time hours alone can be used for affordability by TSB.
Chris Sykes, mortgage consultant at Private Finance, described the decision by some large lenders to no longer accept applications from furloughed workers as a “blow” to those still on furlough.
Mr Sykes said it was “indicative of the cautious approach lenders are taking at present and their fear that these workers may not have jobs to return to come the end of the scheme”.
He added: “Unfortunately there are very limited options for borrowers on furlough and so those looking to purchase or remortgage will have to hold tight until they are back in full employment.”
Likewise Eve Morgan, owner and consultant at Morgan Harrison Mortgage Solutions, said with the furlough scheme coming to an end in October, it was “natural” for lenders to question whether a client who is still furloughed will reasonably have a job to return to.
Government guidance for employers on when the coronavirus job retention scheme closes states that an employer must decide to either bring employees back to work on normal hours, reduce employees’ hours or terminate their employment.
Ms Morgan added: “Hopefully the clients in question will only have to put their plans on hold for a short period until they have more certainty in their employment and it will prevent buyers potentially moving forward with a transaction that could quickly become unaffordable.
“Where it is a joint application and affordable on one salary they are still able to move forward in most cases so it will only be those who are reliant on both incomes to support the mortgage that will be affected.”
David Hollingworth, associate director, communications at L&C Mortgages, said while lenders had mostly taken a “positive approach” to using furloughed income throughout the pandemic, with most prepared to accept it for affordability purposes, the “big question” had always been what happens when the scheme ends.
Mr Hollingworth said: “It was inevitable that lenders would have to change their approach to furlough income over time and as the withdrawal of the scheme draws closer lenders have to question how income looks moving forward. More are therefore generally taking the approach of requiring confirmation of a return to work in order to accept the income and to confirm ongoing affordability.”