Mortgage lenders have tightened their criteria for mortgage applicants ahead of changes to the governments furlough scheme.
The tightening was predicted by brokers and is being made in line with upcoming changes in the furlough scheme that comes to an end in October.
The current government guidance surrounding the end of the scheme states that employers must decide whether to bring employees back full time, on reduced hours or terminate their contract entirely. For mortgage lenders, it’s this element of unknown that is prompting the new changes.
Various lenders have already made changes to their criteria for borrowers with Accord Mortgages no longer accepting mortgage applications from anyone still on the furlough scheme as of September 1st.
Similarly Clydesdale Bank revealed last month that temporary changes to its lending policy would mean that the income of a customer currently on furlough would not be used in an affordability checker.
Banking giant TSB has made similar changes, announcing that for any applicant currently making use of the coronavirus job retention scheme, their income would not be used as part of the affordability checks.
Meanwhile if a mortgage applicant has returned to work on reduced hours whilst receiving furloughed income, TSB would only be using the income from the reduced hours to check affordability.
Mortgage Consultant at Private Finance, Chris Sykes, described the decision as a ‘blow’ to anyone still on the furlough scheme hoping to apply for a mortgage.
“Unfortunately there are very limited options available for borrowers on furlough and so those looking to purchase or remortgage will have to hold tight until they are back in full time employment”, he said.
Eve Morgan, Owner and Consultant at Morgan Harrison Mortgage Solutions said that as the furlough scheme comes to an end, it is only ‘natural’ for lenders to be cautious about who they lend to.
“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’s 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”, she said.
The government’s job retention scheme is set to come to an end in October and brokers have predicted massive changes to the mortgage industry in the run up.