As the clock ticked over to midnight and a new tax year began, every single self-employed person is able to prove exactly what they earned over the last 12-month period.
Lenders will be presented with irrefutable proof of those earnings and will be able to use their traditional measures of judging a self-employed person’s mortgage affordability to genuinely ascertain how much they will lend, and the borrower’s ability to pay.
They will no longer be able to suggest that last year’s lockdown period(s) represents the true nature of the self-employed borrower’s income for the year, because they’ll have the yearly income right there in black and white.
And they will not be able to put off any decision because they need to see exactly what the full 2020-21 tax year figures for that potential borrower are, because they’ll have that information.
Lenders will be able to take an average of the last two years’ income, or they can just use this the past year’s accounts.
Because after all – using the argument they’ve pushed time and time again recently – last year is likely to have been the worst of the two because of the pandemic, so they’ll have exactly what they need to make the lending decision.
Changing tone from lenders
It’s at this point that we now anticipate a shift in tone from certain lenders.
After a year in which a large number of lenders have actively discouraged self-employed borrowers applying for mortgages with them, we anticipate there will be a major marketing and advertising push to encourage these borrowers to apply.
Lenders will boost their income multiples for self-employed borrowers, will move their criteria and pricing more in their favour, will offer them the same access to higher loan to value (LTV) products as they have offered their employed borrower counterparts over the last six months.
Because now self-employed borrowers will more than likely be seen as lower-risk than employed borrowers.
After all, lenders will have total transparency on the self-employed borrower’s finances. Whereas in the employed space there will still be uncertainty about their employment prospects and potentially around their incomes in the future, and their ability to keep paying their mortgage.
Is this just fantasy?
In essence, the tables should really turn for self-employed borrowers.
Lenders’ message to self-employed borrowers will now no doubt be positive and clear – we want your business.
That will be exactly what will happen if the lenders who have treated self-employed borrowers in such a poor way are in any way consistent with their most recent approaches to this borrower demographic.
Or are we just describing a fantasy? We’ll leave you to decide.