One of the most obvious changes we have seen from mortgage lenders is the restrictions on applicants’ income and affordability.
Many employees rely on elements of income other than their basic salary, such as commissions and overtime. Lenders will use varying % amounts of additional income an employee receives from 100% to 0%, this can have a major impact on an applicants’ total loan available.
Since the Coronavirus outbreak we have seen lenders significantly adjust their criteria around affordability in general. The most significant challenge is proving to be when an applicant has been ‘Furloughed’, if you are furloughed by your employer, it means you're being sent home, but will still receive 80% of your salary by the Government, up to a maximum of £2,500 a month. Most major banks will still lend to workers on furlough, but many are assessing lending on a case-by-case basis. Many lenders will now only accept an employees’ furlough pay rather than their normal salary amount. Some lenders have now started asking new customers on furlough to provide letters from their employers confirming they will indeed be brought back to work.
Case by Case Basis
The term ‘Case-by-Case Basis’ is one that is becoming synonymous with mortgage applications. It means that the lender will review each individual application on it’s own merits. This is particularly important when an applicant has income made up from commissions and overtime as well as basic salary. Basically, lenders are looking at the industry you work in and deciding how your industry will be affected by the impacts of coronavirus.
An example would be a car salesman whos’ commission makes up 70% of earned income. One lender will not take the commissions earned at all, another will take 65% of the commission amount and another will not take any of the commission if the applicant has been furloughed. It is safe to say that there is no one size fits all.
Further pain is dealt out to those applying, as the time taken for the lenders to assess cases has increased significantly, making the applicants sweat before a decision is made.
This will leave a huge number of employees (who have been furloughed or not) in a state of flux. Knowing what the right thing to do is difficult to say the least, and will often require us to discuss a case with a number of lenders before we are able to recommend the best solution before going forward.