Will being on leave affect my mortgage application?
The leave scheme, introduced by the government in March 2020, has allowed many businesses and employees to remain financially stable despite forced shutdowns and trade slowdown caused by the pandemic.
The program allows companies to temporarily put workers on leave, while paying them 20% of their wages while the government pays the remaining 80%.
With 9.6 million workers on leave, this begs the question: How can depending on government assistance affect credit scores, loans or mortgages?
With that in mind, we’ll take a look at how the leave plan may affect your mortgage application.
How do banks rate workers on leave?
Since many banks consider a stable income as well as a credit history in the applications, potential borrowers may find that their applications are less likely to be successful without an employer paying most, if not all, of the money. their salary.
TSB and Virgin Money, for example, will not factor in earnings on leave when determining whether an applicant can afford a property. HSBC will consider employees with a return-to-work date within three months, but not employees with or without a return-to-work date in more than three months.
Different lenders have different views, so it’s best to consult a range of lenders to gauge your best odds. However, for any employee on leave with no start date in the near future, applications are unlikely to be considered.
Many banks have explicitly stated that only salary will be taken into account, meaning people on leave with overtime, commissions or bonuses will not see these assets taken into account.
How to increase the chances of a successful application on leave
Workers on leave will have a harder time getting a mortgage application accepted, but there are ways to improve the chances of acceptance.
First, those who have the ability to rely on unauthorized income from a partner can apply through their partner’s stated salary. This may get you accepted, but it will still limit your options if the lender sees your lack of pay as a big obstacle to your partner’s income.
Second, your employer can have an impact on the success of an application. Most lenders who are considering putting workers on leave will need written confirmation of your return to work date and if it happens within three months, lenders are more likely to consider your request.
A term longer than three months tends to deter lenders because the landscape of the economy and employment is less certain, but that does not mean that it will not be taken into account at all.
Along with your return to work date, your employer can also confirm your pay when you return to work, as some employees will have to accept a pay cut in order to return to work.
Will the leave affect the remortgage?
Whether you’re looking to switch lenders or switch plans with the same lender, the leave can potentially limit your options for remortgage.
If you’re looking to stay with the same lender and migrate to a new, comparable plan, being on leave won’t impact that.
The lender will use the initial affordability check made when your current mortgage was accepted and apply it to the updated mortgage (assuming it is very similar to the previous one).
However, if you want to stay with the same lender but need a more generous mortgage, a new affordability check will need to take place and this will take into account the layoff, as well as your smaller salary. your employer.
If so, your application is unlikely to be accepted unless you have a return date and confirmed salary from your employer.
For those looking to move to a new lender, the above rules apply. Any request will require an affordability check which generally does not favor employees on leave.
As mentioned earlier, a due date and salary confirmation can help your application, but it may be more beneficial to wait until you are working again or apply with income from a partner who is not on leave.
The mortgage leave program was introduced to provide financial relief to people on leave or laid off during the COVID-19 pandemic.
It has allowed borrowers to withhold payments and manage their personal finances when employment may not be a certainty. For those taking advantage of this scheme, if you want to remortgage with the same lender on a similar plan, you will be able to do so without undergoing an affordability assessment.
Talk to your lender
While the options are certainly limited for those on leave, there are ways to increase the chances of your application being successful.
There are also a number of actions to consider that do not require an affordability check, although they may not lead to a better deal or a new supplier.
It is always worth talking to your current lender to assess the options and discuss all of the alternatives available.
Michael Foote is director of the cost comparison site, Quote Goat