The perception that the self-employed have been underserved by the mortgage industry appears to be supported by recent research from Aldermore Bank. It found that around a third of business owners believe that mortgage lenders are biased against them based on their employment status. With an estimated 4.8 million self employed people living in the UK, this could mean that there is a significant number underestimating their ability to raise funds.
Prior to the pandemic criteria had been improving in the preceding years, as lenders looked for strong borrowers without having to compete purely on price. Since Covid-19 banks and building societies have increased checks, factoring in the impact of lockdowns on your income and ability to trade during this period. They are looking at whether you have taken a Bounce Back (BBLS) or Coronavirus Business Interruption Loan (CBILS) and in most cases asking to view your last three months business bank statements. Prior to submission of an application, you want to be prepared and provide an overview of the above to your broker in addition to the usual personal tax returns or company accounts.
Within the self-employed and contractor category is an ever-widening array of clientele and lenders must ensure that they do not treat all customers the same. For some clients, the impact on their income over the last few months has been negligible and on occasion it has increased, even in market sectors that have been heavily impacted. This is where it can be useful to provide an overview from your accountant to support your ability to sustain payments. It is important to recognise that many business owners are represent a good credit risk and ensure they can access the required finance.
I often come across a belief that lenders will only average your last two years personal tax returns. There is a wide variety of policies however, whether that be providers that can use your most recent year, banks that only require one year of trading, options that use your salary and net profit instead of salary and dividends for a company director or solutions that will base lending on your day rate for contractors. As an industry we must keep these flexible options available for the right circumstances and continue to innovate, maybe then we can overcome the notion that support is not available for the self-employed.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Lee Langley is the Principal Mortgage and Protection Adviser at OnPoint Mortgages. OnPoint Mortgages a trading style of L&D Mortgages Limited is an appointed representative of The On-Line Partnership Limited which is authorised and regulated by the Financial Conduct Authority.