The coronavirus pandemic means that many people are having to adapt to living on lower incomes, which may affect the amount they can borrow.
Some mortgage lenders have announced changes to their affordability criteria to give more clarity for those who have been furloughed due to coronavirus, or those who receive a variable income which includes bonuses.
Will mortgage lenders consider furlough income?
Being furloughed means staff can be retained by their employers, who can claim 80% of their employees' monthly wages from the government, up to a maximum of £2,500 per person.
Although the approach can vary between lenders, many have adapted their criteria to include borrowers whose income has changed. As a result, the majority of lenders have confirmed that they will be able to take furloughed income into account for mortgage affordability assessments. Those whose income has changed need to provide proof of this revised income and possibly a letter from their employer if they have been furloughed.
If your employer is topping up the remaining 20% of your income, lenders will typically also take this into account, but again it must be evidenced.
Changes for those with variable income
Lenders have in many cases reacted to the uncertainty that the pandemic throws up by tightening their approach to those with variable income. Overtime, commission and bonuses may no longer be accepted by some lenders, and income from shift work may also be excluded.
What happens if my income has changed?
Lenders will need to be able to show that the mortgage is affordable and will be sustainable. If a borrower doesn’t pass the affordability assessment due to having a new lower income, they may still have options available to them, such as extending their mortgage term or reducing their borrowing. find the right lenders and best deals to suit their needs.
Help for those who’ve already exchanged
Mortgage providers will give home-movers who’ve already exchanged contracts the option to extend their mortgage offer for up to three months to help those affected by coronavirus.
This will provide some peace of mind to buyers who need to postpone their move until a later date and are worried about their mortgage offers expiring.
Stephen Jones, chief executive of trade body UK Finance said: “It is clearly not appropriate for people shielding or self-isolating to move home. Therefore where chains contain people in these groups, lenders, conveyancers and other professionals are working together to enable these customers’ moves to be delayed.
“Where people have already exchanged contracts for house purchases and set dates for completion this is likely to be particularly stressful. To support these customers at this time, all mortgage lenders are working to find ways to enable customers who have exchanged contracts to extend their mortgage offer for up to three months to enable them to move at a later date.”
If a homebuyer’s circumstances change during this period and continuing with the mortgage would cause them financial difficulties, UK Finance has promised that lenders “will work with customers to help them manage their finances”.
Lenders revise affordability criteria for those affected by Covid-19