Borrowers who are receiving Covid-19 financial support or who work in a risky sector face an increasing fight to get accepted for a mortgage. But brokers insist this reinforces the importance of advice for finding solutions that are hard to uncover when going direct.

For months it has been well documented that many lenders are not accepting furlough income or pay from the Self-Employment Income Support Scheme (SEISS) for affordability assessments. Yet now there are also reports of lenders rejecting applicants who are not receiving help but who work in a risky industry, such as travel or hospitality, even though such terms are not contained in any lender criteria.

Where a lender accepts a borrower’s furlough or SEISS support, it may not use the client’s full income or may limit the loan-to-value ratio. Meanwhile, some lenders also require a letter from an employer confirming when their employee will return to work and their pay at that time. Amid such continuing uncertainty, however, not every employer can be sure of its future, let alone the future of its employees.

Brokers do the leg work to find a lender taking furlough income

These difficulties have the potential to affect huge numbers of consumers given the most recent government statistics suggest that about 12 million roles have been on furlough since the pandemic began.

Borrowers may feel unnerved at the thought of missing out on ultra-low mortgage rates, but the key message from intermediaries is: where one door is closed, often another opens, and brokers are the ones who usually have the key.

Negative approach

The issue of lenders rejecting borrowers who work in risky sectors has been raised by Brightstar group chief executive Rob Jupp.

He says: “Some lenders deliberately target companies in certain sectors that are still receiving furlough payments, [as an excuse] to reduce LTVs or to not lend whatsoever.

“Where lenders have an oversupply of potential borrowers and only a finite amount to lend, they can pick and choose who they lend to.

“We are also seeing some lenders taking a negative approach to business owners who have accessed coronavirus business interruption loans or bounce-back loans, even if the balance remains in their account.”

The longer the use of payment holidays, the more likely borrowers will feel the impact

Jupp says the problem is most prevalent for travel and hospitality workers, adding: “The regulator should ensure a lender cannot reject a customer for a reason not detailed in its criteria.”

Although other brokers to whom Mortgage Strategy spoke have not encountered this issue, L&C Mortgages director David Hollingworth says: “Lenders are likely to ask about income where an applicant works in an industry heavily affected by the pandemic.”

Jupp does not name lenders at the heart of this potential new problem, but his comments and those of other brokers suggest it is not market wide, meaning there is normally a solution for a borrower even if their first choice says no.

‘Grey area’

Trinity Financial product and communications director Aaron Strutt notes that the huge complexity facing borrowers who have accessed Covid-19 financial help reinforces the importance of brokers.

He says: “Brokers do the leg work to find a lender taking furlough income. It is not that easy to find out the banks and building societies using furlough income, or their policies, so brokers are calling them to check. This is a grey area.”

Other brokers agree that their role has become even more important during the pandemic. In fact, during research for this article Mortgage Strategy studied many lenders’ criteria online and found that some did not clearly mention the impact of furlough, SEISS loans or payment holidays. Hence borrowers who do not seek advice face a potential minefield.

Hollingworth names Barclays and Metro Bank among the more flexible lenders in helping borrowers who have used government income support schemes. Cherry Mortgage & Finance director Matthew Fleming-Duffy, meanwhile, highlights smaller building societies, such as Dudley and Ipswich.

He explains: “Smaller societies tend to have a more flexible approach as they are not so reliant on automation. They tend to take more time in understanding a client’s situation.”

On the more general problems facing borrowers who have received income support, Fleming-Duffy says: “Some lenders accept furlough income whereby they generally use 80% of this income. This is also on the assumption that the applicant has a return-to-work date.

“However, most lenders will not use furlough income.

“Considering the number of lenders, clients are best advised to speak with a good broker who can research the market because some lenders can consider individual cases by exception.”

The regulator should ensure a lender cannot reject a customer for a reason not detailed in its criteria

Even where a lender shows some flexibility, this may not apply across the board. For example, Metro Bank accepts furlough income, but only up to 80% LTV.

Its criteria also state: “This will need to be supported by a letter from the employer to confirm the terms of [the employee’s] furlough or changes to pay, the date they return to work and confirmation of their pay at this point.”

Metro Bank is not alone in this respect and, with employers having to foot some of the furlough bill from July until the scheme ends in September, there are concerns it could push some firms over the edge and they may be unable to make the promises lenders want.

Like Metro Bank, Ipswich Building Society accepts furlough income but limits it to mortgages up to 80% LTV. However,  even then it may not take the applicant’s entire income into account. Its criteria state, “we accept up to 60% of the applicant’s income if on furlough”.

Change of tack

The problems facing borrowers on government support schemes have not always been apparent during the pandemic. For ex-ample, Halifax and Nationwide initially accepted furlough income before changing course in autumn last year. Other lenders that do not accept furlough income include TSB, Virgin and Yorkshire Building Society.

It is a similar story with grants for the self-employed. Many lenders do not take this income into account, in addition to other, often more strenuous, checks on the self-employed.

Where a certain type of income is not accepted by a lender, this does not lead to automatic rejection but will make a client’s acceptance chances significantly worse.

Lenders are likely to ask about income where an applicant works in an industry heavily affected by the pandemic

Borrowers who have taken mortgage payment holidays also risk a rejection. When payment holidays were introduced, the regulator stressed they should not leave a negative mark on a borrower’s credit file. But some brokers say borrowers who are still on a payment plan could face acceptance problems.

Hollingworth explains: “The longer the use of payment holidays, the more likely borrowers will feel the impact. Some lenders already clarified their position that they would expect the borrower to have been back making payments before an application would be considered.”

For example, Santander’s lending criteria state: “A current payment holiday would be taken into account [for affordability purposes].”

Meanwhile, Metro’s criteria state: “We consider applications for further advances or remortgages involving capital raising for applicants who have recently been on a payment  holiday, on the condition the applicant is no longer on a payment holiday.”

It is evident that some lenders, while offering flexibility, do not extend it to all prospective borrowers.

Of course, amid such complexity you would expect brokers to claim they have the keys to unlock lending problems. There is little evidence, however, to suggest they are wrong.