For the self-employed and those on complex incomes, securing a mortgage on the high street has always been a bit more challenging, as this demographic has often fallen foul of one size fits all mainstream lending criteria.
Criteria set to tighten
This trend is likely to escalate even further as market conditions become more volatile and uncertain as the year progresses, with even those who normally fit the mainstream mould also likely to encounter delays in securing a mortgage.
While volatile market dynamics is a storm everyone in the market has to weather, specialist lenders and building societies have been catering for the needs of the self-employed and those with more complex and irregular income for decades.
Assessing applications on their merits
It’s key for lenders operating in this space to treat no two borrowers the same, by which I mean adopting a blanket approach.
This is a borrowing type where applications need to be individually assessed and underwritten on their own merits to ensure a responsible and competitive solution is delivered depending upon past, current and future incomes.
This approach to lending continues to offer a real point of difference for credit worthy borrowers who are still being ignored by the mass lending market and presents a real opportunity for brokers with clients who are self-employed or have multiple or irregular and complex incomes – a demographic that accounts for 4.25 million people in the UK, according to figures from the Office for National Statistics (ONS).
Non-vanilla borrowers
For brokers with clients who fall outside the standard mainstream lending criteria, understanding what is available and how to help self-employed clients secure a mortgage is vital. Knowing which lenders are also likely to accept the business will also make the process more seamless for everybody involved.
In the case of self-employed workers, the most recent year’s accounts rather than an average over two years can now be considered by some lenders when applying for a mortgage.
For limited company directors, the salary, dividends and retained net profit from the financial year may also be considered. This can be the most recent year and there is also the option for a 5.5x income product which is often the preferred option in these types of cases.
Self-employed workers such as those in the Construction Industry Scheme (CIS) may be treated as employed instead of self-employed provided they have worked for the same firm for six months, making the process much easier. Similarly, for zero-hour contractors, only six months on a zero-hour contract could be considered.
There are many subtle differences between self-employed and complex income borrowers and the approach of lenders will differ depending on criteria and attitudes to risk.
Forming relationships
This underlines the importance of identifying and working closely with lenders who have the ability to assess each case on their own merit and underwrites each application individually. And these relationships will help deliver the types of solutions which cater for more clients with complex income streams.
