Mortgage News: Furloughed Workers Face Tighter Lending Restrictions From Banks

New mortgage restrictions for furloughed workers
(Image credit: Getty Images)

Furloughed workers could find it harder to get mortgages after some banks started to tighten their restrictions over eligibility.

HSBC, TSB and Metro Bank have all announced lending restrictions for furloughed workers, and this raises serious concerns, especially as it has been immensely challenging to push mortgages over the line since the start of the Covid-19 pandemic, particularly for furloughed workers. 

Mortgage broker Trussle reports that 70% of lenders have tightened their policies when it comes to applications from people on furlough, although it is not believed that there are any restrictions on self build mortgages.

It is important to note that these restrictions do not mean an outright ban has been imposed. Furloughed workers will still be able to apply for mortgages, but these lender moves will be a blow for prospective first-time buyers on furlough, as well as furloughed homeowners who need to remortgage.

Some of the leading banks which have recently imposed restrictions include:

  • TSB - will no longer accept single applications from furloughed workers if their salary isn’t topped up by their employer. Joint applications with someone else will be considered, in which case the furloughed worker's salary will be listed as £1
  • HSBC - will no longer accept applications from furloughed workers unless they can provide a letter from their employer stating they will return to work within the next three months, with proof of their salary
  • Metro Bank - will no longer lend to furlough workers with 10% or less equity or deposit

Mark Harris of mortgage broker SPF Private Clients, said of the restrictions: “Some incomes will, in the short term at least, be affected. Lenders are exercising caution and ensuring we don't see a return to irresponsible lending seen before the last financial crisis.”

Uncertainty Sparks Mortgage Restrictions

House prices rebounded in July, but the lack of certainty over furloughed workers’ employment has led forecasters to speculate that the housing market could struggle in the long term.

The Resolution Foundation estimates that around one million furloughed workers face the risk of unemployment when the government’s Coronavirus Job Retention Scheme ends on 31 October. Meanwhile, the Office of Budget Responsibility suggests that three million UK workers could be unemployed by the end of the year.

There have been calls to extend the furlough scheme as a preventative measure against mass unemployment, but it is not believed that this is an option the government is considering.

What Can Furloughed Workers Do?

Furloughed workers who are concern about their mortgage prospects can take several steps to plan ahead for the end of their furlough period: These include:

  • Consider a mortgage holiday - if you haven’t taken an initial payment holiday you can apply for one up to 31 October, or you can speak to your lender about extending this holiday
  • Consider applying for the Green Home Grant - the Green Homes Grant will help to improve your home’s energy efficiency, leading to lower energy costs
  • Consider a product transfer - check your eligibility for a product transfer with your existing lender to see if it could save you money
Jack Woodfield
News Editor

Jack has worked in journalism for 11 years and is the News Editor for Homebuilding & Renovating, a role he has had since 2019. He strives to break the most relevant and beneficial stories for self builders, extenders and renovators, including the latest news on the construction materials shortage and hydrogen heating. In 2021 he appeared on BBC's The World at One to discuss the government's planning reforms. 

He enjoys testing new tools and gadgets, and having bought his first home in 2013, he has renovated every room and recently finished a garden renovation.