A survey of 2,000 adults by NerdWallet found that 64 per cent of people did not think lenders considered furlough support in mortgage applications, whilst 42 per cent thought that being self-employed would not be a factor.
During the pandemic some lenders took a more restrictive attitude to furlough and self-employed lending, with many refusing to lend to borrowers who had been or were on furlough or took Self-Employed Income Support Scheme (SEISS) as they were perceived as a higher risk.
Criteria is now starting to soften, with lenders now stating that they will lend to those on furlough or a government grant as long as they were not using it in the past three months.
HSBC, NatWest and TSB are among those who have updated criteria in the last few weeks.
However, with over two million people still on furlough and the scheme due to expire in September, along with other government support like SEISS, this could be a crucial factor for successful mortgage applications and options available, especially for younger borrowers.
According to the latest statistics from the Office of National Statistics (ONS), the largest group of people on furlough were aged 25 to 34, with around 515,900 people within the age group on furlough.
This is followed by those aged 35 to 44 with 508,800 people, and then those aged 45 to 54 numbering at 481,200.
NerdWallet’s senior mortgages expert Richard Eagling said the results showed that people underestimated the impact of furlough or using self-employed grants on their ability to secure a mortgage.
“A lender will always determine the risk level that a mortgage applicant presents and whether they can afford the repayments, and it seems that many lenders are excluding furloughed income when assessing affordability,” he said.
He added: “Likewise, some high street banks are declining mortgage applications from those who took the government’s SEISS grant or are asking them for larger deposits. This is another sting in the tail for those that have been financially affected by Covid and presents a challenge to their dreams of homeownership.”
Darryl Dhoffer, mortgage and protection adviser at The Mortgage Expert, said there was a lack of awareness around the impact that taking out government support would have on finances, and this could leave borrowers in a worse position.
He said: “If you had been offered furlough or SEISS there was no warning that it could impact your finances or that lenders would put really strict limits in place. It is slowing coming back but it is taking a long time.”
Miles Robinson, head of mortgages at Trussle, said overall very few lenders were accepting anyone still on furlough and most required applicants to be back in work full time.
He added: “When it comes to self-employed applications, lenders are doing a much more thorough check of the business and looking at bank statements to see how the business has traded over the last 12 months.
“Before the pandemic, most lenders would only review average accounts to ensure the business was profitable. In addition, any self-employed buyers who have taken advantage of the coronavirus bounce back loans or the SEISS will also have a more limited pool of lenders to choose from.”
Lender’s approach becoming more flexible
John Phillips, national operations director at Just Mortgages, said the results illustrated the crucial role the brokers could play in providing expert advice.
He said: “There was understandably a level of nervousness around the furlough scheme initially, as the direction of the economy was uncertain. But with the recovery looking encouraging, these initial fears are abating and restrictions are being relaxed.
“With some lenders removing restrictions, others will follow suit. The crucial thing for brokers is to be honest with clients, explain to them that being on furlough does limit the options somewhat, but there are lenders out there willing to lend if you meet their other criteria.”
Phillips said some lenders had exacerbated reservations around self-employed borrowers and options may be more limited, but others were also becoming less restrictive as the economy bounced back.
CMME Mortgages head of mortgages Simon Butler said: “We tend to find that lenders change criteria fairly consistently during difficult periods, but I think it comes in waves. It was initially very negative, a lot of withdrawals and very risk averse and now you are seeing uptick with more positive attitudes to furlough and self-employed.”
He said criteria and lending approaches were definitely “changing for the better” but amendments were sporadic and it took a lot of time and effort to “keep abreast of all these changes”.
Butler said: “You have got a lot more nuance in the market now, but it is tricky as something that might not have been accepted last week could be accepted now.”
Matthew Corker, operations director at Knowledge Bank, echoed that lender approaches were becoming more flexible, but said varying approaches could make the landscape more confusing.
He said: “Lenders have certainly relaxed restrictions on historic furlough income. Once the client is back working, nearly all lenders are happy to accept them. The self-employed mortgage market is completely different however and is evolving rapidly. Lenders are announcing new criteria for freelancers almost every day.
“These changes are largely restrictive and look to impact self-employed clients for a few years. Lenders are bringing in complex rules surrounding SEISS and asking for more documents to verify earnings, so brokers need to ensure they are up-to-date on all the latest changes.”
He said some lenders would use an average of the last two years’ income, or the lowest from the past two years or deduct SEISS from income to calculate affordability.
