Furlough fallout: Big banks refusing mortgages to workers

This newspaper launched an investigation after a Norwich man with more than two decades of unbroken employment was refused a remortgage application by NatWest bank.

The man, who asked to remain anonymous, has had only a handful of furlough days this year and has never been placed on the scheme full time.

The country's biggest mortgage lender, Lloyds Banking Group, as well as Nationwide and NatWest, will refuse mortgage and remortgage applications from people who were furloughed in the month prior to application.

The banks' blanket ban has been met with outrage by MPs who have called on the government to step in and stop millions of people being refused loans.

A NatWest spokeswoman said: "We continue to support customers who have returned to work following furlough to apply for a mortgage with us, however this now requires providing at least one month’s full evidence of their income."

When asked if the individual's income for the past month was received via the Job Retention Scheme would be rejected, the NatWest spokeswoman confirmed: "That is correct, however we would accept applications if they have alternative forms of income or if a second applicant has not been impacted."

NatWest also confirmed that people on flexi-furlough would be rejected as it is not an "acceptable income".

A spokeswoman for Lloyds Banking said: "As a responsible lender, we make decisions based on a full understanding of customers’ individual circumstances.

"Since September, we require new applicants who had been furloughed to demonstrate that they’re now being paid in full by their employer."

Nationwide added: “We remain committed to supporting those looking to move or buy their first home and are continuing to lend to all sections of the market. However, affordability must remain a key consideration when considering mortgage applications, especially during these uncertain times.

"That is why Nationwide is not accepting furlough income when considering affordability as part of the mortgage or remortgage application process."

The stance was slightly different at Santander, which said it would accept furlough income as part of its affordability assessment except in cases where the individual has been furloughed since June 2020.

But, it added, it will accept employer letters as guarantees of income as long as return to work date and terms are laid out.

One individual, who asked not to be named, saw their remortgage application denied because they had taken some furlough days last month.

He said: “I can understand banks being reluctant to lend in the current climate, but surely there could be more nuance than a blanket ‘you’ve had a handful of days on furlough so we’re not accepting applications’ approach to this.

“It wouldn’t be hard for them to ask applicants to get their employers to send letters of support, stating that furlough was for a finite period and will be ending.

“Instead they’re saying no to people, who in some cases have been loyal customers to them for years, with hardly a consideration.

“It’s not a good look for the banks and it’s causing extra concern for families at a time when things are already stressful enough.”

The policy has been branded "wholly unfair" by MPs, who called on the Treasury to investigate the matter.

The Treasury however, has said decisions about loan availability and the application process are for lenders to make.

Duncan Baker, MP for North Norfolk, said: "I am disappointed to understand banks are making it hard for constituents, who for a multitude of reasons may need to move or take out mortgage products.

"The government has furloughed throughout the pandemic some 11 million jobs to enable people to still have the incomes they need to get by.

"The banks, who have been supported by the taxpayers in the past, to turn around and then not take this guarantee of income into account on applications is wholly unfair when we are trying to support ordinary citizens live their lives to the best of our abilities."

Clive Lewis, Labour MP for Norwich South, called on the Treasury to investigate the matter, adding: "This is going to be frightening for people who have experienced furlough and are looking to remortgage, many of which will be looking to do so because of how hard they have been hit during the pandemic.

Norwich South MP Clive Lewis. Pic: Yui Mok/PA Images (Image: PA Wire/PA Images)

"It's not a surprise to me that this is the case. It reminds me of the financial crisis of 2008 which saw government prop up the banks and then the second the banks needed to protect their profits the battened down the hatches. They didn't protect their customers, they protected their money.

"It would be no surprise to me if this concern has been raised and they all simply thought: the markets will decide."

"It's a head and heart decision," said Jan Hytch, residential and operations partner for Arnolds Keys, and former president of the National Association of Estate Agents.

Jan Hytch, partner at Arnolds Keys and chairwoman of the NDAEA, Norwich & District Association of Estate Agents. (Image: Arnolds Keys)

"On the one hand, banks have a legal obligation to lend responsibly. And there will be some nervousness that people on furlough may still be on the scheme because their employer is stringing out letting them go.

"However, that is hugely unfair on the people who are legitimately on furlough and will have a job to return to. Take people in hospitality for example, they will be on furlough because they are legally not allowed to reopen, but they will have an income to get back to when they can. However in this situation they are stuck.

"The problem is that people might have volunteered for, or taken furlough, without truly understanding the impact of doing so down the line."

Barclays have also been approached for comment.

• ANALYSIS: Banks must think again, says business editor Richard Porritt

“Although hardship lies ahead, no-one will be left behind.”

Those were the words of chancellor Rishi Sunak as he unveiled an unprecedented financial survival package in a bid to ensure the British economy did not crumble in the face of Covid.

So news that banks - bailed out by the British public not so long ago - are now refusing people lending if they have been on furlough comes as a major blow. And not just to those unable to get on the property ladder or raise cash by remortgaging.

Number 11 is now in a very tricky position and they must pressure the banks to think again on a blanket ban.

Of course lenders must be able to make decisions on a case-by-case basis - but why should someone who has 25 years of unbroken earnings and just a few days of furlough not be deemed a safe bet for a mortgage?

And where were the warnings?

Many workers accepted furlough to protect the businesses they work for and, ultimately, their own jobs. But the scheme has to be agreed to by workers.

Would so many millions have agreed to the plans if they had known it could hamper their family’s future?

Many banks have helped businesses through the crisis - and for that the institutions deserve praise.

But they must not now turn their backs on the public and punish them for doing their bit amid the pandemic.

The banks must think again so furloughed workers are not unfairly punished.