Furlough-Friendly Mortgage Applications Continue to Rise

Brokers across the UK reported increased demand from mortgage applicants seeking flexible and accessible mortgages, having had their employment status and income affected by mandatory business closures. Furlough-friendly mortgage activity increased almost 70% in January, followed by a further 8% increase in February, Legal & General reports.

The news has been welcomed by industry observers, among whom many had predicted stagnation or a significant decline after January’s rapid growth. With the UK having been plunged into another major lockdown, the real estate market was once again predicted to slow down.

It was estimated that approximately 4.7 million people were still on the government’s furlough scheme in February, with no clear indication as to when they would return to work.

Stamp duty holiday incentives

A major spike in mortgage application activity between December and January was attributed largely to the original March 31 stamp duty holiday deadline. Motivated by the potential to save thousands of pounds by avoiding or reducing stamp duty liability, many buyers attempted to rush through property purchases during this time.

This resulted in an unprecedented 230% spike in furlough-friendly mortgage applications between December and January, as those being supported by the furlough scheme at the time sought to take advantage of the stamp duty suspension.

With most major lenders demonstrating reluctance to applications from furloughed workers, many were turning to brokers to access specialist home loans from independent lenders not available on the High Street.

Adverse effects on financial status

The same report from Legal & General indicated a 27% increase in the number of searches brokers performed for lenders who would consider working with customers who had previously missed mortgage payments.

A spokesperson from Legal & General said that this reflects the growing number of individuals and households that have had their financial status adversely affected by the COVID-19 crisis.

As demand for desirable properties in key locations across the UK remains strong, average house prices are also increasing steadily.

According to the Office for National Statistics, average property prices in the UK were up around 8.5% compared to the same time last year. Over a 12-month period where many had expected house prices to plummet across the country, the real estate market weathered the impact of COVID-19 better than most could have predicted.

“The wide-ranging implications of COVID-19 are continuing to play out in the mortgage market, and it’s clear that advisers are playing a critical role for borrowers,” said Clare Beardmore, head of mortgage transformation and operations at Legal & General Mortgage Club.

“Not only are many focusing their efforts on finding lenders that meet the needs of those with more complex financial circumstances, including those on furlough, but they are increasingly supporting others with more affordable routes onto the ladder too.”

Prospective borrowers concerned about their eligibility for traditional high-street mortgages are being advised to consult with independent brokers rather than approaching banks directly.