There has been a lot of talk recently about the difficulties of obtaining a mortgage for the self-employed.
It’s well understood that, during the pandemic, lenders changed their criteria, and many self-employed clients were struggling to keep their business going.
So, the government came up with a solution – the self-employment income support scheme (SEISS) grant. This provided much needed support to those struggling during the pandemic.
And it was popular too. According to government statistics, there were five million self-employed workers, based on reported self-employed income, in the tax year 2018 – 2019.
By January 2021, 2.2 million people had claimed a third SEISS grant – amounting to more than 40 per cent of the total self-employed. However, although this support was most welcome, it potentially created other problems, further down the line, for its users.
We’ve seen recently that some lenders may be treating self-employed clients differently according to the support they accepted during the pandemic.
Indeed, some are going so far as refusing to accept mortgage applications at all from those who received these grants. This is a problem that neither the industry, nor the self-employed, may have foreseen.
Overlay this with reports of lenders potentially refusing cases simply based on industry, and we find a potentially large-scale issue for the self-employed when they try to obtain a mortgage.
Recent research by Aldermore collaborates this – finding that over one third of the self-employed people asked believe they will never own their own home.
So, what’s the solution? And how, as an industry, can we help?
My view is that we need to apply commonsense and look at the wider context around these cases rather than applying a ‘snapshot’ approach.
This means looking at each case on its own merits, trying to fully understand the impact of Covid on the applicant’s business, taking a pragmatic view of their use of government support. It also means looking at the wider context.
Questions should be asked about what’s happening now, as well as before the pandemic, and whether they are trading again. They might have recent investment, or investment on its way. They may have been performing well before the pandemic and have a good track record.
There’s also the consideration of the long-term prospects and sustainability of the business, and whether they have qualified accountants to supply their business account information.
We’ve certainly seen many cases along these lines, but applying a commonsense approach, we’ve managed to find ways to support brokers and their clients, while lending responsibly.
We’ve done this by taking a rational view of their usual circumstances pre and post-Covid, on top of the information they provided.
Support from all in the industry
Business development manager teams also play a large supporting role here in terms of one-to-one guidance for brokers, acting as a go-between with underwriting teams, and ensuring that the case goes through as smoothly as possible.
Of course, brokers also have a major role to play, being perfectly positioned to hold those conversations with lenders who can apply commonsense and collecting as much information as possible about their clients’ business.
They can use their vast knowledge of the market – understanding which lenders are most willing to lend, and which offer the best rates. Brokers can really show the value of their advice, which has never been needed more, especially for the self-employed.
Advisers should also ask themselves whether they can give their self-employed clients the confidence that there will be a lender willing to help them.
Sharing recent case studies with clients to demonstrate that they have previously helped self-employed applicants will go a long way to facilitate this.
Most importantly, we need to work collaboratively as an industry, showing empathy to the self-employed and really taking the time to understand their individual situations and help them, rather than ruling them out based on decisions they took during the pandemic.