Many lenders have recently stopped accepting income derived from the Job Retention Scheme, often referred to as furlough, as counting towards affordability. Although the JRS has been extended until at least early December to coincide with tighter lockdown restrictions, that situation may deteriorate further for some borrowers when it morphs into the less generous Job Support Scheme.

Meanwhile, although lenders as a general rule do not name any sectors as high risk in their official criteria, workers in industries hardest hit by the pandemic may also fall foul of requirements to prove their jobs are viable in the long term. In addition, these people are more likely to be furloughed.

This all comes at a time when UK unemployment and personal debt levels are rising. The FCA said in late October that 12 million adults had what it called “low financial resilience”, meaning they were at risk of falling behind on payments. It said 31 per cent of adults had experienced a drop in household income since the pandemic began. However, that data was published before the new lockdown restrictions came into force in early November.

Change of criteria

Highlighting the problems many borrowers now face, sister brands Halifax Intermediaries and Scottish Widows changed their criteria in late September. Now they do not accept borrowers with any furlough income on their current payslip, although they will consider clients when they are being paid in full again.

Nationwide is similar. Its head of secured credit risk, Andy Jackson, says: “During the early part of the pandemic we accepted applicants on furlough, but as the scheme draws to an end we have been asking for proof that the applicant will be returning to work.

“Those on furlough will have experienced reduced affordability, which may impact their ability to get the mortgage they want. Employment sectors more likely to be on furlough will inevitably be disproportionately impacted by this.”

London & Country director David Hollingworth says: “Lenders have generally been supportive of those who relied on the furlough scheme. Most took that income into account but it was inevitable their approach would change. Now lenders want to see evidence that furloughed employees have returned to work.”

Trinity Financial product and communications director Aaron Strutt adds: “Most lenders want a payslip, proving that you have gone back to work, rather than a letter confirming a return-to-work date.”

Government figures show that, in May, 30 per cent of the UK workforce was furloughed, representing the peak. More recently this percentage had dropped, although at the start of October the Institute for Fiscal Studies estimated that almost three million – or 12 per cent – of the workforce were being furloughed. Despite the reduction, that is still a huge number.

The JRS pays 80 per cent of workers’ wages up to a maximum of £2,500 per month. The new scheme — for which a launch date is unknown as it will come into force only when lockdown restrictions are eased — is more complex, with payouts dependent on the type of business. If the business is still open, the employee is bound to work at least one fifth of their normal hours in order to receive anything. If they do, they could receive up to 73 per cent of their usual wage.

Of course, some sectors have been harder hit than others. For example, a survey for the Association of British Travel Agents showed that, by August, the pandemic had already put 18 per cent of the UK’s travel industry jobs at risk, while Abta said at the time that the situation was likely to worsen.

The woes experienced by the hospitality sector are highlighted by data from Caterer.com, a jobs hub for the sector. It says it received more than 2.1 million job applications between March and mid-October.

High-risk sectors

Workers in high-risk sectors naturally face more hurdles when applying for a mortgage, even though lenders are not specifically stating that any industry will be scrutinised in more detail.

Jackson says of Nationwide’s policy: “We have made no changes relating to any specific employment sector. Covid-19 has led to increased complexity in some cases so more complex applications are having to be reviewed directly by an underwriter.”

Many brokers point to that move towards more manual underwriting across the sector as being crucial because it naturally allows a human being to ask more questions.

Hollingworth says: “Those in the hospitality or aviation industries may potentially feel the impact of the pandemic more keenly than others. As a result, customers will face more questions to help the lender understand the longer-term sustainability of their situation.

“That greater scrutiny of borrowers is the likely approach lenders will take rather than a blanket criteria change. Nonetheless, it may be harder to convince a lender that business and income have returned to normal when in a sector that is more vulnerable to the impact of coronavirus.”

Strutt adds: “Many of the banks and building societies have been underwriting cases that would normally have been offered without human intervention. Lenders have been asking borrowers to complete declarations and I have seen one bank asking applicants to confirm why their income has not been affected by the coronavirus, to check whether the reason is plausible.”

Many in hospitality, travel, the creative arts and other struggling industries are being urged by the government to retrain, and last month it launched a controversial advertising campaign to encourage just that. One now infamous advert that attracted much criticism for its perceived insensitivity depicted a ballerina called Fatima, with the accompanying text saying ‘Her next job could be in cyber, but she doesn’t know it yet.’

Even employees in more secure jobs may have problems borrowing as much as they would like, or even at all. Lenders are being stricter with additional income, such as overtime, bonuses, tips and commission.

“Lenders have largely tightened criteria around the use of variable bonus income, which could be at risk in the current environment,” says Hollingworth.

“The same could be said for those on zero-hours contracts, although some lenders have recognised that contract workers in certain sectors should be supported. Some will take zero-hours contract income only from those who are NHS nurses and locums, care workers or supermarket workers, who have of course been busier than ever.”

Self-employed

As has been well documented, the self-employed have borne much of the brunt of the economic fallout from the pandemic, given the impact on many small businesses and the fact contractors and freelancers are among the first to be let go when turnover falls.

The government’s Self-Employed Income Support Scheme has been gradually watered down. The initial three-month element paid up to 80 per cent of monthly profits, but the next three-month tranche fell to up to 70 per cent. The 80 per cent rate has returned for November in line with the second lockdown, but will drop to 40 per cent of trading profits for December and January.

However, campaign group Excluded estimates that about three million self-employed workers do not qualify for any help under this scheme.

Brokers whom Mortgage Strategy spoke to insist the checks made on self-employed borrowers are similar to what they have always been. In particular, this means assessing income over the past couple of years or so.

However, given the greater income insecurity for the self-employed and the inferior support they have received compared to employed workers, many may struggle to get accepted.

“If current self-employed income cannot be evidenced, it is very unlikely a mortgage application will be successful,” says Cherry Mortgage & Finance director Matthew Fleming-Duffy.

Varied response

It is not all doom and gloom, however, because simply working in a high-risk sector does not mean instant rejection. After all, many aircraft have still been flying, many restaurants have remained open and some events have still run.

Also, within any industry there will naturally be different types of business more or less impacted by the pandemic. For example, some takeaways are thriving even though restaurants may not be. This, perhaps, explains why lenders do not treat industries as homogenous entities.

“This lender approach does not necessarily result in a decline,” says Hollingworth. “Anecdotally, there have been instances where someone working in hospitality could state they were busier than ever and having to recruit to deal with demand, which was clearly an accepted response.”

Hopefully the overall narrative will move towards this more positive picture. For now, however, brokers may need to work harder to find their client a mortgage if they have been furloughed or work in an industry hit hard by the pandemic.