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Self-employed borrowers need intelligence and empathy from lenders – JLM

by: Sebastian Murphy is head of mortgage finance and Rory Joseph is director at JLM Mortgage Services
  • 08/02/2021
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Self-employed borrowers need intelligence and empathy from lenders – JLM
Much of the early noise this year has been around what the advisory community wants to see from lenders, and the wider market, throughout the rest of 2021.

 

Aside from the Financial Services Compensation Scheme (FSCS) saying it requires over £1bn from regulated firms in 2021/22, and that mortgage advisers’ charge will increase to a staggering £22.9m from £3m last year, much of the focus has been on underserved product areas that could do with a boost.

Actually, let’s not put that FSCS levy aside because to say it’s obscene would be a gross understatement on so many levels.

Why the mortgage advisory profession is being punished for the sins of others in sectors they invariably don’t even trade in, is nonsensical and shows how wrong this whole system is.

This is where we need our trade bodies to step up and protect us.

 

Intelligence, empathy and flexibility

However, in those other, underserved areas, there is clearly some real work to be achieved here, and one of the key ones is the treatment of self-employed borrowers and what lenders are, or are not doing, to help them onto the ladder.

And how are they ensuring we do not have a new batch of mortgage prisoners forced to sit on their lender’s standard variable rate (SVR) for years and years because they can’t get a remortgage or product transfer.

Lending to the self-employed – especially after the year many of them have had – requires intelligence, empathy and flexibility to put aside traditional norms which might have worked pre-March 2020 but seem completely outdated now.

 

Same rationale as employed borrowers

For example, now the self-employed have posted their 2019-20 accounts, lenders should be using that along with the last three months bank statements, to check the 19-20 income is still relevant.

Yet, some lenders still want January-May 2020 bank statements and are apparently basing lending decisions on that period when many businesses will have suffered a lag in cashflow due to lockdown.

What they should be reviewing is October through December 2020 to see if the income and cashflow of those three months is now back to normal. If it is then surely we can say they are a sound risk.

Effectively, we need lenders to use the same rationale they would for employed borrowers – the 2019-20 accounts should effectively supersede those early 2020 bank statements, especially when you make the comparison with the last three months.

Of course, life will be made easier when we have the 2020-21 accounts, but that is nearly 12 months off.

In the meantime, it’s clear that a number of lenders do not appear to have the appetite to work like this.

 

Self-employed not worth the effort?

If you are easily fulfilling your lending targets, then perhaps the harder, more labour-intensive work of dealing with self-employed borrowers, doesn’t seem worth the effort?

If that’s the case, why advertise you lend to the self-employed in the first place?

And why have lending policies which seem completely out-of-date and step with a pandemic situation?

Why focus on the period which could have seen the biggest short-term hit to a client’s finances, when you can use the last three months to see if a more normal situation has emerged?

We’re acutely aware that lockdown has been very tough for some people, but certainly not all, and certainly not for a prolonged period of time.

If we’re aware of that, why aren’t lenders willing to build that into their decision process and systems?

What should be the primary driver of a borrower’s risk to the lender right now?

Should it be determined by the last three months and the previous full-year or should it be the period of the lockdown which could look very different to every year prior?

We know what we would put our faith in, and it wouldn’t be the information which looks like an anomaly.

Having called for common sense lending in this area for most of last year and now this, we’re hoping that at some point certain lenders will have to face up to the new reality.

Perhaps it will only happen after they endure a month where targets aren’t hit and the rest of the year becomes much more difficult, but the sooner this happens, the better for us, and our self-employed clients.

 

 

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