How a four-day week for busy mortgage advisers with no downsides might work
Seconds provider Evolution Money is one of 70 UK companies now taking part in a six-month trial of a reduced working week without any sacrifice to the pay of employees.
The premise is that employees will keep 100 per cent of pay for 80 per cent of their time, in exchange for a commitment to maintain at least 100 per cent productivity.
It’s suggested that a four-day week creates happier healthier employees who are motivated and more focused on achieving key targets so there is no impact on output under the model.
Almost eight out of 10 employees with a four-day week are happier and less stressed, according to non-profit group 4 Day Week Global.
Reduced working days also cut the carbon footprint of businesses and reduces barriers for women in the workplace.
Atom Bank switched to a four-day week at the end of last year.
Mark Mullen, chief executive at Atom, said at the time: “We believe the 20th century concept of a five-day week is, in many cases, no longer fit for purpose for 21st century businesses. Its introduction originally allowed for the establishment of the weekend, with all the benefits for employees this entailed. At Atom, we feel the time is right for the next evolution in the world of work.”
He added that giving employees a better work/life balance would have a positive impact on both productivity and customer experience.
A difficult model for one-man bands
Working a four-day week is a concept that Lewis Shaw founder at Shaw Financial Services embraces.
He said: “It would work best where half of the staff work Monday to Thursday and the other half work Tuesday to Friday.
“That way, there’s always coverage in the office, customers can get hold of someone, and there’s no loss of continuity of a case.”
However, for the hundreds of brokers who are essentially one-man bands working a four-day week without impacting client service could be tricky.
As an adviser that works alone, Shaw feels it is difficult to currently put the processes in place to make it feasible.
He hopes to hire staff later this year and would be open to allowing them to work reduced hours “as long as the job is getting done”.
He added: “In the main I think everyone should be output focussed rather than input.”
Rhys Schofield, managing director at Peak Mortgages and Protection, also believes that it is a model better suited to workplaces with a larger employee base. He raised the issue of potential for complaints from customers if they are unable to reach their adviser.
He added: “The only way I see it working is with a wider team supporting each other so someone can respond to queries if someone is off. Saying that I don’t know a single broker packing five days’ work into a five-day week at the moment so I’m not sure how feasible it is.”
How could busy brokers work four days
The frenetic pace and heavy workloads brokers are already sustaining was seen as a hurdle by others.
Matthew Fleming-Duffy, director at Cherry Mortgage & Finance, said: “A four-day working week could really become a reality for some job roles, however anyone working in the mortgage industry will know the time-sensitive pressures we are under.
“I take calls and communicate with my clients out-of-hours, weekends and even when on holiday. For me to say that I only want to work four days a week seems like a wistful desire for the impossible.”
Graham Cox, founder and director at Self Employed Mortgage Hub, said the mortgage industry “needs a radical overhaul” for the four-day week to work for advisers.
He said: “There’s too much legacy technology still being used, not enough open banking, poorly designed and worded forms and so on, all of which makes the mortgage adviser’s job much harder than it ought to be.”
However, Donna Matthews, founder and principal mortgage adviser at Honeybee Mortgage Solutions also backs a four-day working week and, despite working largely alone in a busy industry, feels she has managed to embody the idea.
She said: “I work Monday to Friday with occasional evenings or weekends if my clients need me, but I take time out through the week. So overall, a four-day week would accurately reflect my working hours. I think that as long as you remain productive, get your work done and put clients first, it’s fantastic.”
Santander amends self-employed mortgage income policy
The bank will now take an average of the last two years’ income or the most recent year if this is lower. For existing borrowers moving home, Santander said its underwriters may be able to use a more individualised assessment.
It previously asked for the last three years of income to calculate average turnover both during and before the pandemic. It also required statements within the last three months to show no government support had been taken.
The loan to value (LTV) limit of 75 per cent still applies for applications where any of the applicants are self-employed. This limit will not apply to existing borrowers who are moving home.
Santander is also changing its definition of a Covid-19 impacted self-employed borrower to now only capture details of outstanding support loans. Santander will remove its Covid-19 question and simply ask borrowers to confirm any outstanding loans.
Businesses will no longer be grouped as Covid-impacted and non-Covid impacted.
Any undisclosed outstanding loans will lead to a declined application and any support payments will be counted as income.
Santander previously categorised self-employed applicants as adversely impacted by the pandemic if their business was not currently trading or had been re-opened for less than three months.
Borrowers were also deemed to be impacted by the pandemic if they had taken a Self-Employment Income Support Scheme (SEISS) grant or if a limited company has received a Job Retention Scheme (JRS) grant. Additionally, those who had taken a bounce-back, Business Interruption Loan (BBIL) or Coronavirus Business Interruption Loan (CBIL) loans in the 12 months prior to the date of application would have been considered adversely affected by the health crisis.
This definition also included self-employed managers whose staff had previously been furloughed due to business trading conditions in the 12 months before the date of application.
These changes will apply from 11 April.
Self-employed mortgage cases needn’t be hard – Saffron BS
I was disheartened to see the results of a broker survey in this article from 18th March 2021, relating to the difficulty of placing self-employed mortgage cases. There are a variety of factors that could be the cause of case rejections.
The pandemic was an undeniably tough period for the self-employed. They faced less financial support from government schemes than the employed. Their businesses were heavily impacted by lockdowns, restrictions, and Covid-19 guidance. Many had no idea what the next day would bring for them.
I wanted to touch upon both issues – the important information that brokers need to understand to submit for self-employed applicants, and how the ‘pandemic year’ of 2020 doesn’t have to be the dealbreaker.
When submitting applications, one big factor that can affect application success is business performance.
When reviewing accounts, underwriters will review the past performance of the business, assess its current state and growth potential when considering the application.
When the government announced it was putting the country into lockdown in 2020, businesses ground to a halt. Without question, this was going to heavily impact the financial results of any business. As brokers are aware, you require three years of business accounts to consider a self-employed applicant for a typical residential mortgage.
The impact of the 2020 accounting year will therefore remain an issue for applicants for a few years to come, depending on the impact on their business. For an applicant who was planning to purchase their home over the next two years, this can or will have devastating consequences on their application.
Not restricted to the self-employed, but across society, adverse credit is a major factor in rejected applications – this has been heightened by the pandemic. During 2020 for example, a higher majority of Brits were late on payments or went deep into or maxed out their overdrafts and/or credit cards.
In a lot of cases, this was necessary to simply survive the uncertainty.
Even discounting the pandemic effects, larger lenders – whose application process relies on technological applications and instant credit checks – will throw up an immediate red flag and, in a vast majority of the cases, reject an application with even the smallest blip on the applicant’s credit file.
One of the financial support packages during the pandemic for the self-employed came in the form of Self-Employment Income Support Scheme (SEISS) grants.
What you may not be aware of as brokers, is that accountants were actively encouraging small businesses to take the grants as a safety net. Many self-employed Brits did – in their tens of thousands – with many not having spent them. Even if they didn’t spend the grant, having applied for it and receiving the money, could or will have an immediate negative impact on their application with some lenders.
Whilst this is pandemic-specific, this can also relate to loans to the business from family or loved ones, or support grants of any nature.
One immediate solution is the specialist mortgage market. Specialist self-employed mortgage criteria differ from standard residential mortgages, allowing greater flexibility and less long-term accounting – if the applicant’s business is in growth and forecasting is strong.
For example, according to some mortgage criteria applicants require one to two years of trading accounts, which is useful for newly self-employed applicants. And this will apply whether they are remortgaging or a first-time buyer.
Every broker will be aware of specialist lenders. Typically smaller, often building societies, that operate very differently from high street brands.
But how do we take full advantage of the benefits of hands-on specialist lenders?
Tell the story
Some of the issues raised around business performance, adverse credit, and SEISS grants could be resolved with just a couple of sentences.
Smaller lenders offer a more holistic approach to applications – with the business development manager (BDM), broker, and underwriter working together on the case. We call this common-sense lending.
- If there is a small adverse on their credit file – tell lenders why. Explain the circumstances. Leave a note and tell the story.
- If there was a blip in the business performance for a month or two, explain why. Maybe it was down to illness or bereavement. Let the lender know. Leave a note and tell the story.
- Did your applicant take the SEISS grant? Why? Was it on the advice of their accountant? Did they use it? Was it necessary for the business? Leave a note and tell the story.
It may seem like this is common sense, but it is commonplace that there is back and forth which slows down the application. Lenders want to give the applicant a fair shot, but if they are in the dark and don’t have the foresight of potential flags on the application, they cannot make an instant decision.
Discounting the pandemic year
It would be a dream to completely discount the pandemic year from accounts when applying for a self-employed mortgage. Well, that dream has become a reality with some lenders.
There are caveats, however. The business must have been trading for a year before the 2020 lockdown and must be showing consistent growth and operating at least at pre-pandemic levels. This is a significant step in improving success for self-employed applicants.
Self-employed applications needn’t be hard
Returning to the title of this article, self-employed applications needn’t be hard. You just need to know where to look. Speak to mortgage clubs, your peers, and BDMs. Search for webinars offered by lenders for guidance too – you will realise help is there.
Brokers: Self-employed mortgage clients are hardest to place
According to a poll conducted by the forum, 24 per cent of brokers said mortgages for self-employed and contractor clients were the hardest to place, closely followed by clients with adverse credit.
Cherry’s survey also indicated that 18 per cent had problems placing low income clients, and 14 per cent said payday loans were their biggest headache. Other difficult areas highlighted by brokers included non-standard construction and debt consolidation cases. Cherry did not disclose the sample size for its survey.
Donna Hopton, director at Cherryplc.co.uk, said: “We know that the specialist mortgage market is thriving, with competitive solutions for a range of customer circumstances, yet our research shows that brokers can still struggle to place cases for common circumstances like self-employment, contract work and adverse credit.”
One of the main issues for self-employed borrowers is systematic. Lenders will generally work off the last three months of pay slips for those in traditional employment, whereas with a self-employed person they will look at the finalised accounts.
Greg Cunnington, COO at LDNFinance, told Mortgage Solutions that this difficulty for brokers and their self-employed clients is due to the way the lending system is currently set up, but that this is improving, with specialist lenders making life a lot easier.
He said: “With the finalised accounts of a self-employed person you’ll regularly see the impact of the Covid dip, which are reflected on the accounts even when their business is doing great post and pre-Covid. So you end up with a lot of these very successful clients who are haunted by that Covid-instability for a lot longer and find it tricky to get a mortgage.”
How brokers can tackle this
Cunnington said the main issue brokers faced when trying to place self-employed cases was having to filter through differing loan sizes for each lender.
He added: “It needs a lot more work and time, but I think that’s a good thing because these clients really need an intermediary and that extra bit of advice, which is the whole point of being a broker.”
He said this could be addressed through digital means.
Cunnington added: “As brokers, it’s about using the enhanced technology that’s coming through properly so that the vanilla cases don’t touch the sides. This frees up time so you can use your brokerage teams for cases that are more complex and need that extra care from a broker who can handle these cases properly and ensure the client understands how lenders assess their accounts, what they’re looking for, what they can use, and how best to manage their business accounts to fit best with what lenders are after.
“A lot of bigger lenders need two or three years of accounts, which puts a lot of otherwise very successful self-employed borrowers off, but we know which ones only need one year so we can put them in contact with those lenders.”
Paul Stringer, managing director at Norton Home Loans, said: “Often the right solution for an individual is available from one of the smaller specialist lenders and the cherry forum is a good way for brokers to leverage each other’s knowledge and experience across the industry for free to arrive at the best outcome for their client.”
Lenders need to add a human touch
Cunnington said: “Lenders need to grow their capacity to have more human underwriters to perform manual assessments. There are now a growing number of specialist lenders who will do that for self-employed applicants and there’s a high success rate with that approach.
“Some lenders have also improved their criteria recently too. Clydesdale, for example, works on gross profit instead of the finalised accounts, which can help self-employed clients borrow more than they’d otherwise get.”
More education needed on second charge mortgages – Central Trust
The findings highlight how there is more education needed around when second charge can be an alternative to a remortgage, according to Central Trust.
Maeve Ward, director of commercial operations at Central Trust (pictured), said: “I’m confident that when brokers fully understand how and when a second charge mortgage might be the right outcome they will look to offer them either directly or via a master broker.”
Some 61 per cent of advisers also reported having problems placing self-employed and contractor cases due to Covid-19 issues, the survey by the intermediary-only lender found.
Brokers were polled during a virtual event which had more than 100 brokers in attendance.
Ward added: “Many self-employed borrowers will be looking to capital raise and a second charge may well be the best solution.
“However, most lenders operating in the market will fall short of the self-employed borrower’s requirements because they will assess the income from the most recent SA302 – which will relate to the period of the pandemic – and not take into consideration what went on before or how the business might now be operating at pre-pandemic levels.”
Newcastle Intermediaries launches mortgages for newly self-employed
The deals are available to self-employed borrowers who have been trading for a maximum of two years with at least one year of financials available.
A two-year fixed rate of 2.55 per cent is available through the range at 80 per cent loan to value (LTV), with a product fee of £999.
There is also a two-year fixed rate of 2.75 per cent, fee-free at 80 per cent LTV.
Both products attract an early repayment charges but allow 10 per cent overpayments per year.
Franco Di Pietro, head of intermediary mortgages at Newcastle Building Society (pictured), said: “We’re committed to supporting customers who need a more flexible lending approach. We know newly self-employed applicants often have limited options available to them.
“We also know there are a lot of successful self-employed traders who may only have a started their business in the past few years, so these competitive new products along with our flexible approach to underwriting should provide brokers and their clients with much needed choice.”
Paul Hampton, principal at broker firm Approved Mortgage Solutions added: “This area of the market is often underserved by lenders so it’s great to see Newcastle Intermediaries re-introduce specific products for newly self-employed clients. One of the impacts of the pandemic is that it has created a new generation of self-employed, and many of those are successfully trading but only have one year of accounts. So these products will provide those clients with some positive options at the perfect time.”
Top 10 most read mortgage broker stories this week – 10/12/2021
Meanwhile, a mixed bag of tax abuse, equity release guidelines, the launch of a mortgage and protection network and news that mortgage choice was at its highest point since 2008 made up the best of the rest.
Here’s this week’s top 10 most read stories.
Skipton BS offers positive changes to self-employed criteria
Natwest removes minimum income and lowers stress test for BTL customers
Property firm bosses banned over tax abuse
Trussle-owner Better.com fires 900 employees over Zoom
ERC to issue guidance on equity release switching and post-completion contact
House purchase expected to hit highest numbers since 2006 – UK Finance
Lenders prepping arrears capability amid fears borrowers may struggle next year
Fixed rates at record low as mortgage choice hits biggest high since 2008
Lack of homes to buy poses bigger threat to market than rate rise
Mortgage and protection network launches with eye on self-employed advisers
Lenders should not shun the self-employed for pandemic related decisions – Duncombe
There has been a lot of talk recently about the difficulties of obtaining a mortgage for the self-employed.
It’s well understood that, during the pandemic, lenders changed their criteria, and many self-employed clients were struggling to keep their business going.
So, the government came up with a solution – the self-employment income support scheme (SEISS) grant. This provided much needed support to those struggling during the pandemic.
And it was popular too. According to government statistics, there were five million self-employed workers, based on reported self-employed income, in the tax year 2018 – 2019.
By January 2021, 2.2 million people had claimed a third SEISS grant – amounting to more than 40 per cent of the total self-employed. However, although this support was most welcome, it potentially created other problems, further down the line, for its users.
We’ve seen recently that some lenders may be treating self-employed clients differently according to the support they accepted during the pandemic.
Indeed, some are going so far as refusing to accept mortgage applications at all from those who received these grants. This is a problem that neither the industry, nor the self-employed, may have foreseen.
Overlay this with reports of lenders potentially refusing cases simply based on industry, and we find a potentially large-scale issue for the self-employed when they try to obtain a mortgage.
Recent research by Aldermore collaborates this – finding that over one third of the self-employed people asked believe they will never own their own home.
So, what’s the solution? And how, as an industry, can we help?
My view is that we need to apply commonsense and look at the wider context around these cases rather than applying a ‘snapshot’ approach.
This means looking at each case on its own merits, trying to fully understand the impact of Covid on the applicant’s business, taking a pragmatic view of their use of government support. It also means looking at the wider context.
Questions should be asked about what’s happening now, as well as before the pandemic, and whether they are trading again. They might have recent investment, or investment on its way. They may have been performing well before the pandemic and have a good track record.
There’s also the consideration of the long-term prospects and sustainability of the business, and whether they have qualified accountants to supply their business account information.
We’ve certainly seen many cases along these lines, but applying a commonsense approach, we’ve managed to find ways to support brokers and their clients, while lending responsibly.
We’ve done this by taking a rational view of their usual circumstances pre and post-Covid, on top of the information they provided.
Support from all in the industry
Business development manager teams also play a large supporting role here in terms of one-to-one guidance for brokers, acting as a go-between with underwriting teams, and ensuring that the case goes through as smoothly as possible.
Of course, brokers also have a major role to play, being perfectly positioned to hold those conversations with lenders who can apply commonsense and collecting as much information as possible about their clients’ business.
They can use their vast knowledge of the market – understanding which lenders are most willing to lend, and which offer the best rates. Brokers can really show the value of their advice, which has never been needed more, especially for the self-employed.
Advisers should also ask themselves whether they can give their self-employed clients the confidence that there will be a lender willing to help them.
Sharing recent case studies with clients to demonstrate that they have previously helped self-employed applicants will go a long way to facilitate this.
Most importantly, we need to work collaboratively as an industry, showing empathy to the self-employed and really taking the time to understand their individual situations and help them, rather than ruling them out based on decisions they took during the pandemic.
More than a third of borrowers believe they can’t get a mortgage if self-employed
A survey by Shawbrook Bank, of more than 2,000 people, found that 35 per cent of those surveyed thought they couldn’t get a mortgage if they were self-employed.
Within that group, 23 per cent were unsure they would be able to secure a mortgage if they were self-employed, with 12 per cent getting the answer incorrect.
John Charcol’s product technical manager Nick Morrey said that whilst the perception may be that self-employed mortgages may be hard to come by that was not necessarily the reality.
“They will be able to get a mortgage but maybe not at the amount they want,” he explained.
This was echoed by Chapelgate Private Finance’s associate director Colin Payne. He added: “Perception and reality can be different things. We have not had a huge amount of self-employed cases…so that could fuel perceptions that they [self-employed mortgages] are hard to get.”
He added: “Self-employed borrowers might not get the most competitive deal because they may not be eligible with a high street lender but there are solutions.”
Payne noted that the ultra-low interest rate environment may also have skewed self-employed views.
He said: “In the era of ultra-low interest rates we have a generation that thinks this is the norm to pick an interest rate of 1.5 per cent. When you quote 2.5 to 3 per cent they think it is really expensive But in reality you’re going back to normal rates that would have been exceptional.”
Brokers also noted that lenders were being more cautious when it came to self-employed mortgages but business was still being written.
Payne continued: “We might have struggled with one or two but for the most part we have been successful. Most lenders are cautious, there is no doubt about that. But I think if you present a case in the right light, do the right digging into the business and how its performing and how it was affected by the pandemic most lenders are looking to help.”
Morrey added that as most high street banks would ask for two-years’ accounts and then use the average profit over the past two years it could be challenging for self-employed clients to secure mortgages, particularly for borrowers working sectors worst hit by the pandemic.
“[Self-employed borrowers] don’t use advisers as much as they should, so they get disappointed after the first two or three responses from banks,” Morrey said.
Morrey added that this could be “disheartening” for self-employed clients who are looking on their own. They may feel “underserved” by lenders.
Habito’s mortgage broker team lead Alex Winn said: “We’ve not seen a big shift in the levels of demand for self-employed mortgages just yet. Most lenders need two years’ accounts so even if it is the case that people during the pandemic created new businesses and shifted to self-employed income, we might not see that shift be reflected in the number of mortgages being approved for a couple of years as people wait to be eligible.”
He added that lenders would be wary of heavily-impacted sectors such as hospitality and travel sector, although this could change following the economy’s full reopening on 19 July.
Attitudes to government support and grants also remained mixed.
HMRC warns of self-assessment delays which brokers fear could stall mortgage process
Borrowers who took out the government’s Self-Employment Income Support Scheme (SEISS) grants are being told by HMRC that they cannot receive their current tax year overview within the normal turnaround of between 24 and 72 hours.
The delay will affect those borrowers who want to use their 2020/21 accounts to support their mortgage application. The tax year overview is requested by most lenders as an accompaniment to other supporting income evidence.
Brokers have reported that their clients and accountants have been told the delays are due to eligibility checks by HMRC.
HMRC, however, says the delays are occurring when taxpayers have included an incorrect return for the SEISS grant.
Matt Poole, director of Poole Family Financial, said his client is a tradesman and took out the grant during the first lockdown when he was not allowed to enter people’s homes.
When restrictions lifted, the tiler saw a surge in demand for his services which has continued throughout the tax year.
Following the strong trading year, Poole’s client decided to move to a bigger house and began the purchase process. However, after being told he will have to wait until 19 June before he receives his tax year overview he is concerned his purchase may fall through.
Stuart Gregory, managing director of Lentune Mortgage Consultancy, yesterday tweeted a response he had received from his accountant.
It read: “I have had a long call with HMRC agent services this morning re 20/21 tax year overview (TYO) confirmation of filed 2021 SA return calculations.
“Currently no TYO are being updated for customers who received SEISS grants until their eligibility has been fully checked.”
The tweet continued: “In conclusion, if lenders insist on a 2021 TYO they are not going to get one for a couple of months.”
Jane King, mortgage and equity release adviser, Ash-Ridge Private Finance, said she received similar information from an accountant.
Poole said: “For the self employed it’s the latest hoop to jump through in getting a mortgage.
“Many self employed people were impacted by Covid last year and didn’t have a choice but to take the SEISS grant.
“For a lot of people business bounced back and they actually did really well last year. For these people who are now looking to use their 20/21 income towards affordability for mortgages, we are seeing delays in obtaining the paperwork that mortgage lenders require.
“Hopefully we won’t be waiting long for HMRC to review these particular tax returns and issuing the all important tax year overview that mortgage lenders require.”
Gregory said: “At the current time, borrowers need reassurance and some certainty. It’s important for them to know if they can expect delays if they want to use their 20/21 tax return information with lenders in the coming months.”
A spokesperson for HRMC said: “SEISS grants are subject to Income Tax and National Insurance. Customers who have received these grants must include them in the relevant Self Assessment return in the correct section. Errors when completing the return will result in a delay to HMRC processing the return due to having to make manual corrections.
“Where applicable, we are working to expedite the process for our vulnerable customers. Where we take corrective action, we will tell customers the result by issuing a tax calculation explaining what we have corrected and why.
“We are working to implement an automatic solution for those customers that have included an incorrect return for the SEISS grant. HMRC anticipate that all processing will be complete by early July and in the meantime, we are working hard to manually process as many returns as we can, particularly for customers in a vulnerable situation.”
HMRC said guidance on how to correctly complete the self-assessment form can be found on its website.