With Covid-19 rules changing almost daily, extensions to furloughs and local and national lockdowns many are facing money worries this winter. If you’re trying to get a mortgage and want to push your property transaction through before the Stamp Duty holiday ends, how do you prove your income – especially if it has temporarily been reduced due to furlough or short-time work?

For those who remain on furlough or have otherwise seen their income temporarily reduce, providing proof of income to mortgage lenders now presents a serious challenge. Many mortgage providers have tightened their lending criteria, especially for furloughed workers, amid concerns of future job losses.

CASE STUDIES

An employed restaurant manager
Sally works as a restaurant manager and is looking to buy a house with her partner, Nathan. Since July, Sally’s employer has brought her back to work on part-time hours and furloughed her for the remainder. Nathan is employed at a marketing agency and is working remotely on full pay. As a result, their prospective lender has asked for the following as proof of income:

— Three months’ payslips and two years’ P60s (these are standard requirements, although some lenders may accept less)
— Three months’ bank account statements
— For Sally, the lender has also asked for a reference from her employer to confirm the date she will be returning to full-time work.

Sally does have three months’ worth of payslips to give to her lender, although these show her reduced furloughed salary, rather than her full salary. As a result, it is likely the lender will use this figure to calculate affordability for her.

A self-employed graphic designer
Dan works for himself as a graphic designer. He has seen his income dip significantly since the onset of the pandemic, with clients delaying or cancelling many projects. After confirming to HMRC that his business had been adversely affected by the crisis, he applied for and received a grant under the Self-Employed Income Support Scheme (SEISS).

Just before the pandemic began, Dan had been looking to buy a flat, but getting a mortgage has since become a lot more difficult. His prospective lender is now asking for:

— Three years’ full business accounts, signed off by a Chartered accountant
— Three years’ SA302 year-end tax calculations and corresponding tax year overview from HMRC
— Most recent three months’ bank statements.

In order to make it more likely that his mortgage application will be accepted, Dan is also hoping to approach some of his clients to ask them for references, stating the work they are likely to have for him over the next 12 months.

Assessing your options
Without a doubt, it is more challenging for some people to get a mortgage at present, given the increasingly stringent affordability requirements that many lenders are introducing – so it’s likely you’ll be wanting a little extra help! Whether you are buying your first home, taking a step up the property ladder or looking to downsize, don’t worry, we’re here for you.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Key takeaways

• The pandemic has led mortgage lenders to tighten affordability criteria and demand more evidence of proof of income
• This is especially true of furloughed workers and those on a reduced income
• For Sally, an employed worker who has been on part-time furlough since July, her lender is likely to want three months’ payslips, along with bank statements for the same period
• They may also want a reference from her employer stating the date she will return to full-time work
• For Dan, who works as a freelance graphic designer, getting a mortgage may be more difficult
• His lender will require three years’ business accounts signed off by a Chartered accountant, as well as three years’ SA302 year-end tax calculations and tax year overviews from HMRC
• Dan will also provide letters of reference from clients confirming work prospects for next year
• If you need a little extra help in these challenging times, we will be on hand to evaluate your circumstances and help you assess all the available options.