A study this week by Pepper Money revealed that the vast majority of self-employed borrowers are concerned about their prospects of getting a mortgage in the future on account of their employment status.
And brokers told Mortgage Solutions that the position of self-employed borrowers has become more challenging in recent years, though there are certain lenders who stand out for being excellent in this area.
Punishing the self-employed
Self-employed borrowers have been “persecuted” by lenders since the pandemic, according to Matthew Jackson, director at Mint FS, who suggested that the mini Budget had led to a further “knee-jerk reaction”.
Jackson added: “Typically, this is an approach where they will look for any reason not to lend, rather than looking for a reason to lend.
“When a client has a case declined for a spurious reason they will, of course, discuss this with colleagues , friends and family and this creates the impression that all lenders are distrusting of the self-employed and hesitant to lend.”
This was echoed by Gary Boakes, director of Verve Financial, who said that lenders had made it more challenging for the self-employed following Covid, with the mini Budget fallout adding “another layer of difficulty”.
Graham Cox, director of Self Employed Mortgage Hub, said that it has gotten tougher in recent months for the self-employed, noting that lenders were being “particularly cautious” with owners or directors of hospitality businesses.
He continued: “Many pub and restaurant businesses are experiencing reduced profitability in 2022 due to the massive increase in energy costs. Even if the latest year’s submitted company accounts show a sufficient profit, some lenders are asking for management accounts or an accountant’s projection for the current trading year to reassure themselves.”
Cox added that lending multiples for self-employed borrowers tend to be locked to maximum income multiples of 4.5 times income, compared with employed clients who may be able to borrow five times their salary.
“Having said all that, for business owners with stable or increasing profits, low personal debts, a good credit history and a decent size deposit, getting a mortgage is usually straightforward,” he concluded.
The importance of timing
Austyn Johnson, founder of Mortgages for Actors, said that timing was a crucial element of self-employed borrowing.
He continued: “Self-employment tends to be a variable or seasonal income and if you apply for a mortgage when you are having a low spell, you are going to have problems. Nothing has changed with underwriting, just that lenders are looking more for inconsistencies with income.”
Johnson pointed to specialist lenders like Precise as being “more forgiving” with seasonal fluctuations, but emphasised it was important to look at the income of bank statements and not just tax forms.
The best lenders for self-employed borrowers
Boakes said: “Covid certainly made people change their businesses and adapt to the new world and we have seen some amazing success stories, so it has been refreshing that some providers will look at cases on an individual basis and accept them on their own merit.
Boakes identified Accord, Platform, Coventry and Skipton Building Societies as the standouts, noting that the ability to speak to underwriters can make a big difference.
Anil Mistry, director of RNR Mortgages, noted that since the pandemic many lenders now ask for three months of business bank statements, which was not the case previously.
Mistry pointed out that as all self-employed borrowers’ circumstances are different, while one lender will be good for a particular borrower, they may not fit for another.
He noted that Kensington are good when there has been a decline in income, while Coventry are useful when the income has increased. Halifax, Precise, Foundation and Newcastle Building Society were all highlighted by Mistry for the fact they only need one year of accounts.
Jackson pointed to the likes of Coventry Building Society, Accord, Kensington and Saffron Building Society as standing out when it comes to self-employed clients, and said that those with specific criteria and policy “excel in this market”.
“We need to see more lenders educate themselves and their staff that the self-employed are not ‘a lending risk’ and are in fact the entrepreneurs of the future and will drive our economy forward,” he concluded.
Lenders need to step up
Lenders should work harder at educating self-employed borrowers about their options, according to Mistry, who suggested the stigma that they will find it harder to obtain a mortgage is not necessarily true.
He added: “To take the stress, hassle, and anxiety away from the borrower, is why we, as a firm, specialise and niche in mortgages for the self-employed and business owners. Most of our social media content is on this, and we do this to create awareness of something which is lacking.”
Paul Holland, mortgage broker at Henchurch Lane Financial Services, said that self-employed mortgage advice is his firm’s niche, and has seen similar concerns expressed by many.
He added: “There are already lenders who naturally approach this type of employment with a more intuitive outlook, but other lenders need to step up if they claim to be treating customers fairly.”
