According to research done by the Association of Independent Professionals and the Self-Employed and mortgage broker CMME, which surveyed 624 freelancers, only 19 per cent of those surveyed thought mortgage lenders would treat them fairly.
This compares to 50 per cent who wouldn’t expect to be treated fairly with only one in 10 freelancers intending to buy property over the next five years.
Over a third of freelancers, 38 per cent, that obtained a mortgage this year said that the process was somewhat or very difficult. This is a 57 per cent increase on 2020.
During the pandemic, lenders amended the way they assessed self-employed applications, with some taking a more restrictive attitude to complex income and government support, like Self-Employed Income Support Scheme (SEISS).
This has started to change, with a recent report from the Intermediary Mortgage Lenders Association said which surveyed 24 mortgage providers, 88 per cent said that they would accept applications from self-employed borrowers.
Variation in lender criteria
Matthew Poole, director of Poole Family Financial, said that self-employed mortgages had “definitely become more complex” since the start of the pandemic, which he attributed to variation in lender criteria.
He pointed to the acceptance of SEISS grants, with some lenders happy to accept them whereas others excluded the grants from affordability calculations, which could negatively impact borrowers.
He added that lender attitudes to accounts could have a negative impact on self-employed borrowers, as it could include a year where their income had suffered.
He said: “We are seeing clients where they have taken a hit on their income during the 2020/2021 tax year but are now back to pre-Covid levels. The frustrating part of this is the majority of lenders will still look to take the 2020/2021 income into account.
“Typically, a lender will average the latest two years if income is increasing or the latest year if income has decreased. Clients where income has decreased for the 2020/2021 tax year may find themselves disadvantaged with strict lender criteria.”
He noted that there were a “select number of lenders” that can consider ignoring 2020/2021 tax year income if it could be proven the client’s business is trading at pre-Covid levels.
He said: “It is this sort of flexibility that will rebuild the self-employed confidence in the mortgage market.”
‘Value of an intermediary is key’
Greg Cunnington, director of lender relationships and new homes at Alexander Hall, said that there was a “misconception” amongst freelancers that its more challenging to secure a mortgage.
He put this down to more complex lender criteria and that more manual underwriting was done on self-employed applications.
He added: “However, we find that lenders very much still want to lend to self-employed individuals. This is where the value of an intermediary is key, as by knowing the various lender criteria and being able to discuss the customers situation with the decision makers beforehand, we can ensure that the application goes as smooth as possible.
“If I was self-employed, I would not want to deal with a lender directly.”
Andrew Montlake, managing director of Coreco, added that “undoubtedly” self-employed borrowers were finding it more challenging than pre-pandemic, but the “perception now is worse than the actual reality”.
He explained: “We have seen a lot of lenders easing their Covid-underwriting and the all-important specialist lenders have a decent offering once more. Whilst we are seeing some overly cautious decisions from lenders, thankfully there are no longer anywhere near as many.
“The issue may well be the new variant and whether we enter into another lockdown period, but I would urge lenders to think sensibly and support business owners.”
He reiterated that mortgage brokers would be vital as they had access to more lenders and whilst the process may be more “laborious” they scan still get a mortgage.