The aftermath of the pandemic has led lenders to scrutinise the income of the self-employed, particularly if they have taken out a government support loan or seen a dip in income.
This has resulted in self-employed borrowers believing they have been shut out by the market, with a majority saying lenders were not doing enough to help them.
Although borrowers may be feeling dejected, Dale Jannels, managing director of Impact Specialist Finance, said this would be a momentary problem as lenders assess the markets self-employed borrowers work in as well as any drops in income.
Jannels said: “I would expect the evolution of the mortgage market to catch up quite quickly and I think by early 2022 most self-employed borrowers will continue to enjoy parity in the mortgage market with their employed counterparts.”
Rob Jupp, chief executive of Brightstar, echoed these thoughts saying he was positive the issue was “highly likely to be a short-term blip”. He said the real problem was lenders not working fast enough to update criteria to reflect challenges of the pandemic.
“Certain sectors may still look and feel vulnerable for a time and lenders may require a deep dive and forensic look at these businesses in such sectors until they are perceived to have returned to normal,” he added.
Other brokers feared a long-term effect would be the case, such as Christopher Hall, mortgage adviser at Mortgage Guardian.
Hall said: “The pandemic is going to heavily impact the self-employed for the next few years as post-pandemic income will look different for many and lenders will continue to be cautious.”
Hall also said self-employed workers’ tendency to be savvy with their tax could hinder their options.
He said: “To exacerbate the situation, the self-employed by nature often want to be tax efficient which conflicts with their mortgage interests time and time again. It seems that for many, the more skillful the accountant the less can be borrowed.
“Lenders are often heard saying that they can’t have their cake and eat it.”
Hall suggested this could lead to a change in how borrowers try to bolster affordability. “The use of dividends to increase borrowing capacity is likely to increase,” he added.
Mainstream catch-up
Jannels intimated that change would have to be led by specialist lenders as this was where intelligent solutions to lending emerged, before being replicated by the mainstream.
Hiten Ganatra, managing director of Visionary Finance, said any changes in attitudes towards the self-employed would improve the image of the mortgage sector.
He said: “While I understand why banks and major lenders are doing this as they want to mitigate risks, I think it is important that they remain open and transparent with brokers and clients about their risk appetite to ensure that the best advice is given to clients at the outset.
“This will help to maintain integrity in the sector.”
Opportunities for specialist market
At the moment, self-employed borrowers are being treated similarly to those with adverse income resulting in them having to go to specialist lenders, Hiten said.
However, Jannels said he did not see this as a concern but an opportunity.
He said: “If the high street won’t change, the specialist market will always evolve to help those who may be short-term affected, and rates won’t be that different.”
Jannels also said current issues would not have an equal impact on everyone, as “a number of lenders already accept just one year’s accounts, even though the company could have been trading for longer”.
Jupp added that the UK mortgage market was “extremely receptive” to change and said specialist lenders were already working to adopt resources in order to help borrowers with mortgage finance.
“We’ve seen a considerable influx of business in 2021 thus far. Many of these clients I wouldn’t have historically expected to see but they’ve been turned down by the high street including – in many cases – their existing lender,” he added.
Hall also said mortgage brokers who specialised in self-employed with access to the specialist market would be more sought after.
