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Lenders must underwrite self-employed borrowers ‘on current business levels’ – Belton and Firth

  • 26/01/2021
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Lenders must underwrite self-employed borrowers ‘on current business levels’ – Belton and Firth
Lenders should focus more on underwriting self-employed borrowers on their current business situation rather than looking back at previous years’ accounts, Legal and General Mortgage Club and Knowledge Bank have argued.


Speaking on a Kensington Mortgages webinar, representatives from both organisations said a more up-to-date approach was the fairest way to treat self-employed borrowers.

Knowledge Bank CEO Nicola Firth (pictured) said: “I’d like to see from lenders a lot more focus put on current business levels rather than looking back retrospectively.

“I don’t think the retrospective look over the past year, two years or three years is going to reflect fairly on that self-employed person or their business.

“So I would like to see underwriting done with a clear view of where that business is now, and how its performing.”

Legal and General Mortgage Club head of lender relationships Danny Belton added: “I agree with Nicola, let’s deal with these customers in a different way, let’s not be too retrospective.

“We’ve learned we can start to look at them in the here and now and how do we project that going forward.”


Lenders took cheap money

On the subject of firms using the government’s bounce back loans or self-employed income support scheme (SEISS), they added that this was similar to the mortgage payment deferral setup.

“How many people took them because they absolutely needed them and how many people were opportunism thinking it’s cheap money?” Firth said.

“How do you treat those people? One size does not fit all. And if someone is using cheap money to pay off a more expensive loan they’re being quite savvy with their business.

“It’s very difficult and nothing but manual underwriting is going to get through that.”

Belton also noted that lenders had been on the receiving end of cheap funding as well and it maybe unfair to hold it against firms doing the same.

“Lenders were very happy to take very cheap money from the government if they could access the relative scheme there, so businesses are doing the same thing there, whether they need to or not,” he continued.

“They’ve just taken it because they can, the same as people taking payment holidays because they can. It’s just allowed in the rules, so is it right to include those in the affordability calculation?

“Ultimately there will be an outgoing and an income, that’s what you’re going to use as basis for assessment.”


Advice needed more than ever

The pair were joined by Kensington Mortgages new business director Craig McKinlay and they agreed that overall the self-employed market was likely to grow and that advice and manual underwriting would be vital.

“I think its going to be really positive in the future, I think there will be more self-employed, that’s what we saw in the last recession,” McKinlay said.

“There’s a really big opportunity for brokers. People need advice more than ever, the more complex the market the harder things get, the more people need advice.”

He added: “Things are changing very quickly but it is a very good opportunity and it’s a real opportunity.”



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