Vaccinations are up. Covid hospitalisations are down. Without wishing to tempt fate, we finally seem to be heading in the right direction. But if you’re a self-employed mortgage seeker, you might be finding it hard to feel optimistic. Sharon Duckworth explains why.
You could argue it’s always been a little more challenging for self-employed workers to get a mortgage or access the best deals. Lenders value security above all else, and there’s no getting away from the fact that, for most self-employed people, income tends to be more erratic than for the employed, with far fewer guarantees of a regular wage every month. But the fallout from the pandemic has made things even more challenging recently. So if you’re self-employed and looking for a mortgage, here’s how the current situation could affect you. Up until now, banks were able to work out affordability based on the clients 2020 accounts, which didn't show any grants, furlough or other support, not to mention any reduction in normal turn over etc. These 2020 accounts are now deemed “out of date” and lenders are now insisting on 2021 figures, which are much more likely to come under intense scrutiny by the banks and the effects of Covid on the self-employed are about to become very apparent to mortgage lenders. SEISS applications affecting lending to the self-employed If you took any of the SEISS grants on offer to the self-employed to help ride out lockdown, you may now be finding that lenders are factoring this into their responsible lending considerations. Some lenders – notably NatWest and Royal Bank of Scotland – have decided that a SEISS grant means a flat ‘no’ to a self-employed mortgage application. Lenders requiring evidence of recovery Other lenders (e.g. TSB and Yorkshire Building Society) haven’t taken quite such a draconian view of the SEISS grant. Rather than a flat ‘no’, they may lend, but will require evidence of your business’ recovery. Given that lenders typically require two to three years’ accounts, receiving a SEISS grant in 2021 may continue to affect your chances of mortgage success in 2024. It’s not just SEISS that could put a spanner in the works either. If you’ve used the Coronavirus Business Interruption Loan Scheme (CBILS) or deferred your tax, lenders may take liabilities incurred as a result into account. Santander has even introduced a mortgage calculator which factors in such payments, specifically for mortgage brokers like us who are trying to help self-employed clients through this particular minefield. Lenders requiring higher deposits Not content with requiring a greater level of reassurance, lenders are also asking self-employed borrowers to find higher deposits, especially where they have taken a SEISS grant. While employed applicants can find an increasing number of 5% and 10% deposit mortgages after numbers were cut during the worst of the pandemic, a SEISS grant will leave you needing a 20% deposit with Metro Bank and a whopping 25% with Santander. Some lenders looking at individual circumstances The problem with a blanket approach a la NatWest and RBS is that self-employed people with SEISS grants who can afford a mortgage perfectly well will still be discounted. Fortunately, not every lender is looking at the situation in quite the same way. This Is Money notes that Saffron Building Society has expanded its underwriting team so every self-employed applicant has a chance to have their specific case looked at. Saffron isn’t the only lender adopting a more individualised approach, while other niche lenders are taking the view that, providing your business has returned to pre-pandemic levels, they will ignore the pandemic-affected period in calculations, or use 2019/20 figures to assess affordability. How do you find a mortgage if you’re self-employed?
Where does all of that leave you if you’re self-employed and looking for a mortgage right now? The fact is it’s probably never been more important to have a broker on your side because they can help you target the lenders most likely to lend to someone in your specific circumstances. That’s massively important not just because it could save you an awful lot of time, but also because every application you make that gets turned down damages your credit rating, which in turn reduces your chances of being accepted for the next application.
So to find the best mortgage for you and increase your chances of a lender saying ‘yes’, talk to us.