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3 May 2020

Can you remortgage if you've been furloughed due to the coronavirus?

Discover how banks are assessing furlough pay and conducting valuations during the lockdown

Homeowners who've been furloughed face significantly fewer options if they need to remortgage, potentially leaving them paying a higher rate, Which? research has found.

The government's Coronavirus Job Retention Scheme (CJRS) will pay grants to any employer that furloughs its staff instead of letting them go. The grants are worth 80% of wages up to £2,500 a month, but employers may choose to top this up to 100%.

We contacted the UK's biggest lenders to find out whether they'll take furlough pay into account on remortgages, and found that some homeowners will have fewer options and could miss out on cheaper deals from other banks.

Here, we examine your remortgaging options during the coronavirus outbreak and explain how lenders are conducting mortgage valuations during the lockdown.

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Can I switch deals with my current lender?

If you're coming to the end of your fixed term, one option is to switch to another product with your current bank or building society. This is called a product transfer, and can usually be done over the phone or online.

Can I switch after being furloughed?

The UK's 10 biggest mortgage lenders have all confirmed to Which? that existing customers remortgaging on a like-for-like basis won't need to undergo affordability assessments. This means there'll be no negative effects for people who've been furloughed.

If you're borrowing additional cash when remortgaging, however, your lender will need to assess your finances, so you might struggle to borrow more if you've been furloughed.

What if I've taken a payment holiday?

The trade body UK Finance has confirmed that banks and building societies have collectively agreed to allow customers who've taken mortgage payment holidays to make product transfers without requiring an affordability assessment.

This means taking a mortgage payment holiday should have no impact on your ability to switch with your current lender.

Remortgaging to another lender

There are more than 50 lenders in the mortgage market, so if you're seeking out the very cheapest rate, chances are it won't be with your current bank.

That said, remortgaging to a new lender could be tricky if you've been furloughed. This is because some lenders will assess affordability based purely on your furloughed income (which is up to 20% lower than usual), and others might not consider it at all.

We asked the UK's biggest lenders to clarify their policies. Here's what they said:

  • Lloyds Banking Group (Lloyds Bank/Halifax/Bank of Scotland): Will consider changes in circumstances as part of the application process.
  • Royal Bank of Scotland/NatWest: Will use actual furloughed income in assessments and request payslips to verify income.
  • Nationwide: Furloughed applicants will be assessed based on 80% of their usual income up to £30,000 gross. Employer top-ups accepted subject to written confirmation.
  • Santander:Will use actual furloughed income in assessments and may require a letter from employer.
  • HSBC:Furloughed applicants will be assessed based on 80% of their usual income up to £30,000 gross. Will take employer top-ups into account.
  • Coventry Building Society: Furloughed income only accepted on applications up to 65% loan-to-value (LTV). Will take employer top-ups into account. Requires a letter from the employer confirming income.
  • Virgin Money:Will not take furloughed income into account when assessing affordability.
  • Yorkshire Building Society: Considers applications on a case-by-case basis and assesses the sustainability of income. If an applicant only has furloughed income, this will be considered based on the level confirmed by the employer.
  • TSB: Will consider applications where a customercan provide evidence their company is topping up to their normal salary or has committed to re-employment.

Should you stay with your current lender?

If you're coming to the end of your fixed term, it's important to switch deal before you're moved on to your lender's standard variable rate (SVR), which will be much more expensive.

There are thousands of mortgage deals out there, and in normal times the smart move would be to start looking into your options around six months before the end of your fixed term.

If you start looking early, you can often set up a deal with a new provider up to six months before the end of your current one. If you decide on a product transfer with your current lender, you can usually arrange this around four months before your fixed term ends.

If you're worried about finding a suitable deal due to a loss of income, consider taking expert advice from a whole-of-market mortgage broker. A good broker will be well-versed on most up-to-date policies and can offer tailored advice on the right product for your circumstances.

Find out more:best and worst mortgage lenders

Picture perfect houses on newly built estate.

How are banks doing valuations?

With the current lockdown measures in place, banks can't send staff out to properties to conduct a mortgage valuation. With this in mind, the biggest lenders are increasingly using automated valuation models (AVMs) and desktop valuations.

AVMs use computer algorithms to assess a property's characteristics and recently sold properties in the local area to estimate the current value. Desktop valuations are undertaken remotely by a qualified valuer.

All of the biggest lenders said they're using these systems, but some have outlined their rules on which properties qualify:

  • Royal Bank of Scotland/NatWest: Desktop valuations available up to 95% LTV, automated valuations up to 60% LTV. New-build, blocks of flats and buy-to-let not currently available.
  • Nationwide: New-build accepted if Nationwide has visited the property in the last 12 weeks. Blocks of flats, Houses in Multiple Occupation and properties requiring full surveys not currently available.
  • Santander:New customers allowed desktop valuations up to 75% LTV with a maximum loan size of £500,000.
  • HSBC: Available up to 90% LTV.
  • Coventry Building Society: Available up to 85% LTV, or 50% LTV on flats. Available on buy-to-let remortgages up to 75% LTV, or 50% on flats.
  • Yorkshire Building Society:Available up to 85% LTV on remortgages, 75% LTV on purchases and 65% LTV on buy-to-let remortgages. Not available on new-build, flats, non-standard properties and those valued at £1m or more.
  • TSB:Limited to some product types and subject to restricted LTVs. New-build not available.

The latest on the coronavirus

Experts from across Which? have been compiling the advice you need to stay safe and to make sure you're not left out of pocket.

You can keep up to date on our latest coverage in our coronavirus news and advice section.