Top tips for borrowers and househunters on furlough
Workers on furlough are understandably concerned about redundancy, as the end of the government scheme in October looms large.
An estimated one million furloughed workers across the UK are at risk of unemployment (according to the Resolution Foundation).
If you have a mortgage or you are hoping to buy a home with one in the near future, you may also be concerned about how your eligibility is affected and if you will be able to borrow.
Online mortgage broker Trussle has published a guide to help borrowers or potential buyers prepare their finances for the end of furlough.
Miles Robinson, head of mortgages at Trussle, said: “There are many uncertainties homeowners and house hunters are facing post-lockdown. The end of the furlough scheme is fast approaching and the deadline on mortgage payment holidays will also be in sight sooner than we think.
“For those looking to get a mortgage, 70% of lenders have tightened their policies on applications from those who have been furloughed.
“Although there are challenges during this tricky time, there are ways to prepare for financial bumps in the road. At Trussle, we’ve prepared some top tips on how to make savings and cut costs over the next few months.”
Seven ways to prep your finances now
Check if you’re headed for your lender’s SVR: For the average borrower, the difference between a market-leading deal and the average Standard Variable Rate (SVR) is around £4,500 in extra interest each year – an amount that can go a long way in terms of other living expenses or saving for the future. Use a remortgage calculator to find out the savings you could make by switching to a new deal. You should review your mortgage three to six months before the end of your initial period to give yourself plenty of time to find and switch to a new deal.
Consider taking a mortgage holiday: It’s clear that mortgage payment holidays have proved a vital lifeline for some homeowners who have suffered financially as a result of the COVID-19 lockdown measures.
If you’ve been part of the furlough scheme and are worried about your future employment status, there is still time to speak to your broker about taking a payment holiday. If you haven’t taken a payment holiday already, you can apply to take one up until 31st October 2020. If you have taken an initial payment holiday and are still struggling financially, you can speak to your lender about extending for a further three months or begin making reduced payments.
It’s worth noting that once the mortgage payment holiday is up, your monthly payments will increase slightly. This is because the additional interest is added to the total mortgage balance.
Consider switching to interest only: Another way to ease financial pressure is by switching your mortgage payment plan to interest only. Adjusting mortgage repayments so that only interest is paid can save homeowners a significant amount on their monthly payments. The money saved can be put into a savings account, or used for other essential expenses.
Look into product transfers: Our data shows that homeowners who go through a product transfer save on average £326.31/month. To put this saving in perspective, the average UK household spends £60.60 per week on food, so a product transfer could cover more than your monthly food budget. Homeowners can check their eligibility for a product transfer with their existing lender to see if they could save money.
Check if you can save by remortgaging: If you’re worried about how your job might be affected by the furlough scheme ending, keep an eye on your mortgage. Mortgages are often the biggest monthly bill that people face, and by remortgaging homeowners could save an average of £326 a month.
It’s important to note that if you’ve been furloughed, remortgaging might be trickier, but not impossible. If you choose to remortgage with your current lender for a similar loan size you may not need to go through affordability checks. However, if you decide to remortgage through a different lender or for a higher amount, it’s likely that you will need to go through affordability checks and that the lender’s decision will be based on your furloughed income only, excluding bonuses and overtime pay. Each lender’s criteria varies so it’s important to seek advice from a mortgage broker before progressing with an application.
Consider applying for a Green Homes Grant: The Green Homes Grant was announced by Chancellor Rishi Sunak in his recent mini-budget. The policy means that citizens will be reimbursed for green home improvements. Registration for the scheme opens in September, but it’s a good idea to consider what improvements would be suitable for your home now. Making green improvements will not only have a positive impact on the environment, but also on your finances, as boosting the efficiency of your home means lower bills.
Talk to your landlord about a payment plan: If you’re renting and struggling to meet your monthly payments, have a conversation with your landlord. In this time of national crisis, landlords are expected to work with tenants to create realistic payment plans for unpaid rent.