Recent years have seen a dramatic increase in the number of people registered as self-employed, with the most recent data from the Office for National Statistics finding that in the last quarter of 2019 there were more than five million self-employed people in the UK, up from just over three million in 2000.
The pandemic caused some lenders to amend the way they assess applications from borrowers with a more complex financial situation, though a new report from the Intermediary Mortgage Lenders Association (IMLA) suggested that the majority of lenders will accept applications from these borrowers.
Kate Davies, executive director at IMLA, said: “Lenders are very aware that, as we emerge from the worst of the crisis, borrowers who may previously have had non-standard financial circumstances may now have even more complex profiles. Lenders have responded to this, and there are now around 5,000 mortgage products on the market.”
However, brokers have argued that some clients in this position still face an excessively tough time in arranging mortgage finance.
A dysfunctional approach
Martin Stewart, director of London Money, questioned how accurate IMLA’s claim was, saying: “I can trump IMLA’s figure of 88 per cent and confidently state that we can consider 100 per cent of requests from self employed people or those with complex incomes. Whether we can actually help them though is another matter altogether.”
Stewart added that lending criteria generally chases market trends, and so it would be welcome to see more lenders try to close the gap and deliver more relevant products for self-employed borrowers. He pinpointed Natwest, Halifax and Platform as being particularly good with borrowers who work for themselves, but questioned the approach of other lenders.
“A market that asks self-employed people for three years’ accounts when an employed person can have income accepted for a job they won’t even start for three months seems a little prejudiced and dysfunctional to me,” he said.
Continued lender caution
Sebastian Riemann, director of Virtus Private Finance, noted that since the pandemic many lenders had increased the reporting requirements for self-employed borrowers, for example by asking for business bank statements on a more regular and extensive basis in order to get a better picture of the health of the borrower’s business.
He noted that it has also taken longer for lenders to return their criteria for self-employed borrowers to pre-pandemic levels.
He explained: “Bonus and commission income was excluded by many lenders for a period of time early in the pandemic but these restrictions started to be lifted towards the end of last year and the beginning of this year. In a similar way some income multiples were restricted for the self-employed which has the same net effect, but some lenders are still imposing these restrictions now.”
The end of vanilla
Brokers were united in suggesting that the days of ‘vanilla’ borrowers are behind us.
Stewart said: “There is very little ‘vanilla’ business out there and clients are now more neapolitan in flavour but they also come with all the trimmings.
Riemann noted that this has boosted the appeal of product transfers “especially where clients have had changes in circumstances or where the current lending criteria is such that they would not be able to move to a new product”.
Employed vs self-employed
Carmen Green, mortgage and protection adviser at Xpress Mortgages, argued that the situation for employed borrowers, even with complex incomes, is largely “back to normal” though there remain challenges in helping self-employed clients.
She explained: “The amount of questions lenders have to ask during the underwriting process means there is more room for subjective opinions; sometimes it felt as though it depended which underwriter picked up the file on the day and how they felt that industry was probably affected.”
Green noted that with lenders taking such varied approaches to applications from self-employed clients, it’s crucial for advisers to understand which lender’s assessment methods will compliment their client’s circumstances in order to place a successful application.
Getting back to normal
There was some praise for the state of the lending market for those with a more complex setup, with Riemann arguing that the level of competition and choice today means that there isn’t much issue obtaining a mortgage regardless of employment status.
He continued: “There are no particular lenders that stand out, remembering that even before the pandemic many would have had their own niche. This of course resulted in some being affected more than others. Generally we are in a really good place in terms of lending currently and I don’t think we need any specific changes.”
Green added: “Overall, there is progress for self-employed borrowers and I think the lenders are doing the best they can. It is still harder work than usual to get a self-employed application through, but I am finding fewer cases are being rejected and the rest of the income types are pretty much back to normal.”