‘One-year’s accounts’ ranked in the top three searches for residential mortgages every month of the last year and for 13 of the last 14 months that Knowledge Bank has tracked brokers’ activity. In five of those months it was the most searched for aspect of lender criteria.
Over the last 20 years the number of self employed workers has risen from 3.3 million to close to five million, accounting for 15 per cent of the country’s workforce, according to the Office of National Statistics.
Furthermore, between June and August there was an annual net increase of 162,000 self-employed people compared to a net increase of 97,000 employed workers.
Yet despite this, only one major high street bank, Halifax, will consider a self-employed borrower with one year’s accounts.
Mortgage Solutions asked the other main high street banks, Barclays, HSBC, Santander, NatWest, Metro and Virgin, along with Nationwide Building Society and Coventry Building Society if they planned to change their criteria but none said they had any plans to launch such a product.
Instead the market is served by around 20 lenders, mostly small building societies and non-bank lenders.
Halifax picking up business
Michael Tickner, principal of KT Partnership, said: “Lenders have always placed a higher risk on self-employed borrowers than the employed. I don’t know why there aren’t more high street lenders offering mortgages to the newly self-employed.
“Halifax are picking up a lot business where others choose not to lend. But why wouldn’t you want to lend money to a newly self employed borrower if they were earning the same money as they were in previous years?”
Banks are also criticised for inconsistent underwriting policies. Some lenders insist that a borrower who has been a sole trader for many years who then converts their business to a limited company will not be considered for a mortgage by many banks until they can submit two years’ limited company accounts.
“If you incorporate your business, the clock starts again,” said Tickner.
Alexander Smith, senior adviser at Capricorn Private Clients, said: “I believe the market for one year’s trading accounts is underserved, and more lenders should consider these types of application on a case by case basis looking at the type of industry, previous industry experience in an employed role, secondary applicant income, and deposit value.”
Smith finds sourcing systems useful but says they are only a starting point to finding a solution.
“They are unlikely to be 100 per cent accurate when trying to locate a lender to help someone with a complex aspect to their situation,” he said. “A broker must consult lenders’ criteria, speak with underwriters and BDMs to be sure of their recommendations.”