Anderson HarrisMarket Insight
Why Covid-19 may impact how much you can borrow
Published: 5th June 2020
This Article was Written by: Adrian Anderson
What you need to know
Covid-19 has undoubtedly had a negative impact on many individual’s incomes and this presents a challenge for those individuals that have been impacted and are looking to take out a new mortgage now. Mortgage underwriters typically assess your financial position at the time of application. How will this affect you?
- If your basic income is lower due to Covid-19, then this may impact the amount you can borrow – For individuals that have been furloughed and are being paid by the government, most lenders will consider the reduced income under furloughing as your basic income. They will not necessarily apply the basic income you were earning pre-furloughing which may impact the total amount you can borrow. The same rule may apply for individuals that have accepted a lower salary, but that are still being paid directly by their employer.
- Variable pay, including bonuses, commission and overtime is normally included as part of the mortgage application process but this may be impacted too. Variable pay must be a regular and sustainable feature of your income if it is to be included in the affordability assessment. The current economic downturn means that some banks are taking a more conservative view. Some banks will not consider any variable income for the time-being. Some lenders will still consider variable income but have lowered the amount they will take into account. There is some positive news as some banks may apply the usual/previous income verification rules applied to annual bonus income pre covid-19.
- Underwriters are assessing mortgage applications from the self-employed and contractors in far more detail than before, which was already quite stringent.
- The lender may focus on the industry that you work in to see if it has been disproportionately impacted by the current economic situation.
- You are likely to be required to provide additional information to enable a more thorough understanding of earnings. For example, the lender may request your last 3 months business bank statements to check that turnover is on track and they may request income projections from your accountant.
If you are seeking to make an application today you need to make sure you are approaching the right lender. We are speaking to the lenders on a daily basis and are aware how lenders are assessing income during this current climate. It is important that you receive quality independent advice during this time hence please do not hesitate to get in touch.