Received mortgage offer and exchanged but now on furlough. What will happen to offer?

pinkcloud17

We received a Mortgage offer from Barclays several weeks ago. Since then we have now exchanged contracts and paid a deposit on the house. It is a new build house and completion is March.

My husband was already on furlough last year, but was topped up to 100% by his employer. By the time we were applying for the mortgage he had already been back full-time for several months. 

We have now been informed he will be furloughed again, for a minimum of three weeks, taking us to mid-January. However, there is no confirmed return to work date, as this will be whenever the government decide tier 4 can end. Therefore, at the moment it is likely he will have one month of full-time pay in February, before we complete, but not if furlough is extended. This time, his employer is not topping up, so he is receiving 80% pay. However, his furlough is part-time. So he is actually receiving 80% pay for 3 days per week, and 100% pay for 2 days per week.

I have no doubts that we would have any trouble keeping up with the payments, as we already pay much more in rent than what we would for the mortgage, plus we put aside savings every month which are the same as the mortgage payments. If it came to it, we would also be able to afford to keep up the payments on my salary alone temporarily, if worst case scenario were to happen and if he ever lost his job, but it is extremely unlikely this will happen. However, we are very worried about Barclays pulling the offer or changing it, as we have had to borrow the maximum loan we could, so there is no margin for them to reduce lending. If they recalculate using 80% of his salary, we won't be able to borrow the amount we need. Our LTV was 80% and term was 5 years.

Since we applied, I've noticed our credit score has decreased, I assume due to the hard credit check when applying for the mortgage. I'm worried this will negatively impact us if another credit check is done.

We've informed the broker and she has said we need to inform the lender. Can anyone please help us with advice on what is likely to happen. I know that all lenders currently have different criteria for this situation. I've read on Nationwide they will pause mortgage offers for pipeline cases, until they can receive a payslip confirming pay is back to full-time. I can't find any information about Barclays. Are they likely to withdraw the offer altogether? Reduce the lending? Pause the offer until he is back full-time? Any chance they will still honour the offer? Thank you.

K_S

@pinkcloud17 The case is likely to go to manual review. Where an applicant is on furlough, Barclays may consider 80% of basic income up to £30k of annual income. Any 'top-up' may be considered as additional income. Given the part-furlough circumstances described, it is likely that the max borrowing will be recalculated downwards on the basis of your husband's pay under furlough.

pinkcloud17

@K_S Thank you for your reply. Yes I was worried that may be the case. If they recalculate it based on 80% we have about an extra £12000 to find which isn't possible. It will be a bit less based on his 2 days a week being 100% pay, but still very difficult. Then we would need to withdraw from the sale and lose our deposit plus other costs. I would be devastated that this would happen because of a temporary reduction of pay which will return to normal before we complete, plus the fact that we know we can still afford it. Surely it would make more sense for them to see that this is estimated to be a three week reduction only, and pause the application until we can prove he is back on full pay before completion. I could maybe understand them recalculating based on furlough pay on applications which haven't been offered on yet. It's so stressful.

K_S

pinkcloud17 said:

@K_S Thank you for your reply. Yes I was worried that may be the case. If they recalculate it based on 80% we have about an extra £12000 to find which isn't possible. It will be a bit less based on his 2 days a week being 100% pay, but still very difficult. Then we would need to withdraw from the sale and lose our deposit plus other costs. I would be devastated that this would happen because of a temporary reduction of pay which will return to normal before we complete, plus the fact that we know we can still afford it. Surely it would make more sense for them to see that this is estimated to be a three week reduction only, and pause the application until we can prove he is back on full pay before completion. I could maybe understand them recalculating based on furlough pay on applications which haven't been offered on yet. It's so stressful.

Just to be clear, I'm not saying that Barclays will for sure come back with a downsized offer. I haven't had a similar case with Barclays so am speaking from a general lender approach to a change in circumstances and what I know to be Barclay's published criteria with regard to furlough income.

I sincerely hope it all works out in the end, do keep this thread updated if at all possible.

Alter_ego

Avoiding this situation is the reason people are exchanging and completing on the same day

pinkcloud17

@Alter_ego yeah if only this was possible with a new build. You lose your reservation if exchanging contracts isn't done within a certain time period, usually 28 days after you reserve.

misscaraxo

Did you have a Covid rider in the contract? We did for our new build, which I think would mean you could get your deposit back if something covid related stopped the sale going through. 

pinkcloud17

@misscaraxo unfortunately not. They wouldn't allow us to make any alterations to the contract.

teachfast

Have you considered approaching his company and letting them know the effects furloughing will have. They may decide not to, based on this, then no problem. It may even be worth you offering to pay some or all of what they would lose to avoid the furlough. 

annetheman

Really tricky, sorry to hear about this unfortunate timing. Of course, the lender must be told - before that happens though, if I were in this situation I would do a combination of what others have suggested above:

I would ask developer to move completion day sooner, preferably to Jan - explain the situation to the employer and ask them to kindly and urgently:
a) delay putting him on furlough until Jan completion date - in this case, not telling the lender yet/pre-completion as no material change in circumstance has happened yet.
b) put him on furlough but top up to 100% and write a letter explaining the top up for the lender - it might be worth negotiating with employer that they can remove the top up after completion date.

Moving the completion date might mean you are paying mortgage etc on a house you cannot move into until March but IMO would be preferable to losing deposit and costs at this stage.

Hope it works out okay!

pinkcloud17

@teachfast thanks - we have considered explaining the situation to the employer to see if they will top up to 100% since this could cause us to lose the mortgage. I'm not sure if they would do that. I don't think it would be possible to pay them back though. We would just also need to see if Barclays would accept furlough with top up.