HSBC is the latest lender to change its lending criteria during the coronavirus crisis.
HSBC says the changes have been made because many companies will potentially have constraints on their ability to pay their employees, while self-employed business owners are also likely to see reduced income.
The lender warns that there is a risk customers will under-estimate the impacts on the affordability of a mortgage and potentially proceed with a mortgage application that is unaffordable. So to “support and protect customers”, it is changing the way it assesses affordability.
With immediate effect, brokers need to ask applicants if their income is impacted by Covid-19 and based on the customer’s response, process the application in line with HSBC’s updated income assessment policy.
For pipeline applications (received before 7 April but have not yet reached offer stage), HSBC will proceed as stated unless the broker informs it of a change to the applicant’s financial situation – in which case the new application guidance will apply.
For post-offer applications, HSBC will proceed as stated unless the broker informs it of a change to the applicant’s financial situation in which case the new application guidance will apply.
Employed income
Where an applicant has been furloughed by their employer, HSBC will assess affordability based on 80 per cent of basic income up to a maximum of £30,000 per year gross. Brokers are asked to input the furloughed income in the application.
Where top-up income is being paid by the employer, the affordability will be based on the level of income being received. Brokers are asked to input the actual income (i.e. including top-up salary) in the application.
Evidence will be required to validate both furloughed and top-up income and all applications where furloughed income or top-up income is being used will be reviewed by an underwriter.
Variable Income
Bonus, commission and overtime will no longer be an eligible source of income with the exception of NHS employees where variable pay/overtime will be acceptable based on pre-March 2020 levels.
Brokers are asked not to complete this section of the application, unless the applicant is an NHS employee.
Zero-hours income
Zero-hours income will be limited to certain professions and where the income has been received for a minimum of 12 months. Income can only be included in joint applications where the customer is not the primary earner and works in one of the following fields: NHS bank nurses and locums; non-NHS bank nurses; care home workers; supermarket workers (including delivery drivers).
Brokers are asked not to complete this section of the application, unless the customer falls into one of the above professions.
Self-employed income
For sole traders, partnerships and limited liability partnerships with less than 200 partners, the latest three months’ worth of business bank statements are required for all customers.
In line with the current process, brokers should input 100 per cent net profit amounts for the current and previous accounting years in the application.
All self-employed applications will be reviewed by an underwriter.
