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Affluent homeowners on furlough face remortgage struggle

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18/05/2020
Well-paid borrowers who have been furloughed under the government’s coronavirus job retention scheme may struggle to remortgage when their current deal expires, brokers warn.

Under the scheme, the government will pay 80 per cent of workers’ income capped at £2,500 a month. This is equivalent to £30,000 net income a year. Employers can choose to top up the remaining 20 per cent of employees’ earnings.

Borrowers who are used to earning, for example, £50,000 a year net income and who took out a large mortgage which is reliant upon their full earnings could find themselves trapped with their current bank and missing out on the best deals.

Furthermore, workers who remain in their jobs on full pay but rely on variable elements, such as bonuses and commissions, may also struggle to find a new deal when their current product term expires.

Chris Sykes, mortgage consultant at broker Private Finance, said: “Product transfer rates are generally in line with a lender’s current range for new borrowers. But a lender that gave you the best rate two years ago, may not be offering you the best rate now. It could be more beneficial for them to move lenders but their temporary income circumstances could be restricting them from doing that.”

Sykes said borrowers may also have different priorities, other than saving money on their rate, such as raising money to build an extension or consolidate debts they may have built up during the pandemic.

However, on a lower income these decisions will also have to be put on hold.

“Borrowers will either have to wait until they are on full income and then move banks, which means moving on to their lender’s standard variable rate, or do a product transfer with their current lender and apply for a further advance later,” said Sykes.

Mortgage applications for furloughed borrowers are being considered but banks are adopting different approaches in how they treat income.

Halifax, for example, will consider furloughed borrowers on their lower income. Where a borrower’s affordability is impacted by a short-term reduction in their income, the bank will consider appeals for higher loan amounts if the borrower has access to a contingency fund.

Sykes said that lenders have also clamped down on borrowers using bonuses and commission to support their income, even if they are no longer furloughed.

He added: “If you had been furloughed it is unlikely you would have been receiving any additional income and the expectation is that the company which has furloughed its staff will not be in a position to pay out bonuses or commission in the future.”

This has led to some lenders taking out bonuses and commission completely from their affordability assessments, and others have slashed it to 50 per cent or 25 per cent of what the borrower receives.

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