Can I Remortgage on Furlough Pay?

How Has Furlough Affected Remortgaging?

The Coronavirus Job Retention Scheme, commonly known as furlough, ran from March 2020 to September 2021 and provided financial support to millions of UK workers whose employers could not operate fully during the pandemic. While the scheme itself has ended, its legacy continues to affect some borrowers looking to remortgage.

During the furlough period, many lenders tightened their criteria significantly. Some refused to accept furlough income at all, while others would only lend at lower loan-to-value ratios or required applicants to demonstrate that they had returned to their full pre-pandemic salary before proceeding.

The mortgage landscape has changed considerably since then. Most mainstream lenders have now returned to their pre-pandemic criteria and no longer specifically penalise applicants who were previously on furlough. However, the period of reduced income may still show up in your financial records and could affect your application in certain circumstances.

If you were furloughed and have since returned to your normal salary, the impact on your remortgage prospects should be minimal. Lenders are primarily interested in your current income and employment status. As long as you can demonstrate stable, ongoing employment and your income meets their affordability requirements, your furlough history should not be a significant barrier.

That said, if furlough led to longer-term changes in your financial situation, such as reduced hours, a pay cut, redundancy followed by re-employment at a lower salary, or increased debt, these factors may affect your application and need to be addressed.

Remortgaging After Returning From Furlough

If you have returned to your full salary after a period of furlough, you are in a strong position to remortgage. Most lenders will assess your application based on your current income, and if you are back to earning what you did before the pandemic, the furlough period should have little or no impact on your options.

To demonstrate that your income has returned to normal, lenders will typically want to see:

• Recent payslips - Usually the last three months, showing your current full salary with no furlough-related reductions
• P60 or tax documents - Your most recent P60 showing your annual earnings. If the P60 covers a period that included furlough, your current payslips become even more important
• Employer confirmation - In some cases, lenders may ask for a letter from your employer confirming your current role, salary and that you are no longer on reduced hours or pay
• Bank statements - Three to six months of bank statements showing regular salary deposits at your normal level

If your most recent tax year includes a period of furlough, some lenders may calculate your income based on your current monthly earnings rather than using the annual P60 figure. This is actually beneficial because it means your current, higher income is used rather than an average that includes the lower furlough period.

The key message is that returning to full employment after furlough puts you in essentially the same position as any other employed borrower. Focus on demonstrating your current stable income and you should have access to the full range of remortgage products available on the market.

If your employer topped up your furlough pay to 100% during the scheme, your income records may show no reduction at all, which makes the process even more straightforward.

What If Your Income Has Not Fully Recovered?

For some workers, the pandemic and furlough period led to lasting changes in their employment circumstances. If your income has not returned to its pre-pandemic level, whether due to reduced hours, a lower-paying new role, or a change in employment status, your remortgage options may be different but not necessarily worse.

Reduced hours. If you have moved from full-time to part-time work since the pandemic, lenders will assess your remortgage based on your current part-time income. While this may reduce how much you can borrow, it does not prevent you from remortgaging. Many lenders have no issue with part-time employment as long as the income is sufficient and stable.

New role at lower salary. If you were made redundant during or after furlough and have taken a new position at a lower salary, lenders will use your current earnings. You will typically need to have been in your new role for at least three to six months before applying, though some lenders prefer 12 months.

Self-employment. If furlough prompted you to move into self-employment, most lenders will want to see at least one year, ideally two years, of self-employed accounts before considering your application. In the meantime, a product transfer with your existing lender may be the best option.

In all of these scenarios, the most important thing is to be honest about your current circumstances and to provide accurate, up-to-date documentation. Lenders will assess you on where you are now, not where you were during the pandemic.

If your income has decreased to the point where a full remortgage with a new lender is not viable, remember that a product transfer with your existing lender can still be an excellent way to reduce your interest rate without undergoing a full affordability assessment. Many existing lenders offer competitive deals to retain their customers.

Furlough, Payment Holidays and Your Credit Record

During the pandemic, many homeowners took advantage of mortgage payment holidays alongside being furloughed. If you were one of them, you may be wondering how this has affected your credit record and your ability to remortgage.

The good news is that the FCA mandated that Covid-related mortgage payment holidays should not be recorded as missed payments on your credit file. Lenders and credit reference agencies agreed to treat these deferrals as a neutral marker rather than a negative one. This means a pandemic payment holiday should not have damaged your credit score.

However, some lenders do take a cautious view of applicants who took payment holidays, even though the credit file shows no adverse entry. When you apply to remortgage, a new lender may ask whether you took a payment holiday during the pandemic and may want to understand why and whether you have since been making regular payments without difficulty.

If you took a payment holiday and have since maintained a perfect payment record for at least 12 months, most lenders will not view this as a problem. The longer the period of consistent payments since the holiday, the less significant it becomes in the eyes of underwriters.

It is worth checking your credit report with all three main credit reference agencies, Equifax, Experian and TransUnion, before applying to remortgage. Ensure that any payment holiday is correctly recorded and that there are no errors on your file. If you spot any incorrect information, dispute it with the relevant agency before submitting your application.

If you fell behind on payments during the pandemic outside of the formal payment holiday scheme, this could have been recorded as missed payments and may affect your credit score and remortgage options. In this case, specialist lenders who cater to borrowers with minor credit issues may be able to help.

Your Options If You Were Made Redundant After Furlough

Unfortunately, many workers who were furloughed were eventually made redundant when the scheme ended. If this happened to you but you have since found new employment, here is how it may affect your remortgage prospects.

Length of new employment. Most lenders want to see that you have been in your new role for at least three to six months before they will consider your application. Some lenders prefer 12 months, particularly if your new role is in a different industry or at a different level from your previous position.

Probation periods. If you are still within a probationary period at your new employer, some lenders will wait until you have passed probation before proceeding. However, other lenders will accept applications from employees on probation, particularly if you have a strong employment history and are working in a similar role.

Income level. If your new salary is different from what you were earning before redundancy, lenders will assess your application based on your current income. If your earnings have decreased, this may limit how much you can borrow, but it should not prevent you from remortgaging altogether.

Gaps in employment. If there was a gap between your redundancy and starting your new job, lenders may ask about this period. They are looking for reassurance that your current employment is stable and ongoing. Having a permanent contract rather than a temporary or fixed-term arrangement will help.

If you used your redundancy payment to reduce your mortgage balance, this could actually work in your favour by lowering your loan-to-value ratio and giving you access to better interest rates. Every percentage point reduction in LTV can open up more competitive deals.

For those who are still looking for new employment, remortgaging will be very difficult as lenders need to see regular income. In this situation, speaking to your existing lender about a product transfer or payment support options is the best course of action.

Getting the Right Advice for Your Post-Furlough Remortgage

The post-pandemic mortgage market has largely normalised, but navigating it after a period of financial disruption can still be complex. Working with a knowledgeable mortgage broker can make a significant difference to your outcome.

A good broker will understand how different lenders view furlough history, payment holidays and changes in employment. They can match your specific circumstances to the lenders most likely to approve your application and offer competitive rates.

When speaking to a broker or lender, be completely transparent about your financial history during and since the pandemic. Trying to hide a period of furlough, a payment holiday or a redundancy is likely to cause problems later in the application process and could result in a declined application.

Prepare the following documentation before seeking advice:

• Current payslips - at least three months showing your present salary
• P60 - your most recent tax year summary
• Bank statements - three to six months showing regular income
• Employment contract - confirming your current role and salary
• Mortgage statement - showing your current balance and any payment holiday taken
• Credit report - checked for accuracy before applying

Remember that the mortgage market is highly competitive and lenders are keen to attract and retain customers. Even if your circumstances have changed since the pandemic, there are likely to be suitable options available to you. The key is finding the right lender for your specific situation, which is where professional advice proves invaluable.

Ensure that any broker you use is authorised and regulated by the Financial Conduct Authority (FCA). You can verify their registration on the FCA register, which is freely available online.