Tony Hall (pictured) is interim head of mortgage sales at Saffron Building Society
Nobody can deny that the government has invested vast amounts of money in securing jobs and assisting businesses to ‘ride the wave’ of a global pandemic. Nobody would claim all of this is fair and just, but that is a political argument. The real discussion now is “What will be the fallout after these schemes end?”.
As a specialist lender, we have seen the pandemic’s effects on the self-employed and contractors, which has been devastating for some. A common opinion is that the employed, and those on furlough, had it easy. This was not the case and furlough became a source of fear and anxiety.
With nearly four million Brits on the furlough scheme as we entered 2021, receiving up to 80% (at the current government level) capped at £2,500, it is easy to understand on paper why different sectors of the workforce – such as the self-employed – feel that they have not been equally supported.
But the long-term effects of furloughed workers are now starting to appear. With a disproportionately higher number of young people on furlough, predominantly due to the impact on retail and hospitality, it is likely to have a long-lasting effect on their financial situation. For clients approaching brokers, it is first-time buyers that are the ones that are going to find buying their first home a particular challenge.
Furlough and the plight of the mortgage borrower
It is not ‘new news’ that a vast number of lenders – significantly larger lenders and high street banks – have said that they will not accept furloughed mortgage applicants. Some have offered a more flexible approach; if you have a date of return to work, you will likely ‘be considered’.
To blanket refuse furloughed staff is a little misguided and could be viewed as slightly unfair. Some furloughed staff have returned to work in a secure job and have returned full time – continuing their career as if nothing has happened.
On the flip side of this, some – very sadly – have lost their jobs entirely. Some remain on furlough, but the business they are returning to may not be tenable, or the jobs they hope to return to are now unsustainable. Every situation is different.
Each case does not follow a set textbook guideline or algorithmic pattern. Larger lenders, especially banks, have a more systematic approach to lending. However, smaller lenders – and especially building societies – have a more flexible approach.
At Saffron, we offer a commonsense approach to lending and consider each case on an individual basis. It may require additional paperwork and homework by the broker and their client, but it is worth it for a more extensive chance of approval. It is unjust to think that every applicant is the same and treat each applicant as just another case.
There will be hundreds of thousands of furloughed employees that will return to work and be unaffected by the months of work lost, financially at least. The best advice is to speak to the lender and find out how they stand. Those who are happy to work on a case-by-case basis will provide brokers with a much better opportunity for their clients.
Furlough and remortgaging
Remortgaging is slightly different when considering furloughed employees. If a client is coming to the end of their fixed term, and wish to remain with their current lender, a product transfer should not require additional affordability checks. Of course, this is assuming that the client does not intend to increase their borrowing.
As with first-time buyers, it could be more challenging to get a mortgage from an alternative lender and to take advantage of better offers available elsewhere. However, the new application will be subject to the lender’s criteria, and once again, furlough time will be considered for affordability.
For a couple, who have both been on furlough, this will be an increasing challenge with many lenders. But, not impossible. In this case, the same applies as it does to a first-time buyer. There are lenders, like us, who will consider applications based on commonsense and individual situations. It is worth widening the lender net and monitoring those lenders who are more flexible as we move further into 2021.
Pressure mounts to extend the furlough scheme.
Pressure has been mounting over the last couple of month which led to a leading think tank being quite vocal about the need to extend the furlough scheme. The Institute of Fiscal Studies’ findings suggests that suddenly ending the furlough scheme on 30 April would have had a detrimental to business and increase the possibility of widespread unemployment.
It calls for a “weaning the economy off the blanket support” approach – suggesting that it is essential for the economy that furlough comes to an end, but to avoid sudden removal.
So now that Rishi Sunak has extended the support in the budget to encourage recovery, whilst furlough remains it will be a cause for concern and an increase in risk for lenders – creating an additional barrier for brokers’ clients.
Lenders are rightfully going to be cautious, but for the sake of the industry, the sooner government support gets halted, the quicker the market will begin to level out. We will then know the true extent of the effects COVID-19 has had on the property market, and we can start to see the road to stability and increased certainty once again.