Financial updates came from the likes of Barclays, Virgin Money, NatWest, Lloyds and Santander. The Mortgage Advice Bureau also issued their half-year results.

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Self-employed mortgage shortage likely to be a short-term blip, brokers say

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First-time buyer numbers drop to three-year low outbid by deposit-rich

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TSB raises rates on five and 10-year fixed product transfers

Virgin Money and Clydesdale Bank introduce contractor solution following IR35 changes

Mortgage firm boss fined for transacting business without PI insurance

According to research from The Mortgage Lender, which surveyed 1,000 self-employed people, this has partially led 51 per cent of recipients believing it will be more challenging to secure a mortgage because of their employment status.

A further 53 per cent said this dissuaded them from applying.

The survey found that just over a quarter had seen their income slashed by more than over half due to the pandemic. Around 16 per cent said they had suffered income loss between a quarter and 50 per cent.

However, there was more of a nuanced picture with self-employed respondents, as 14 per cent said their income either had not changed or had improved.

The Mortgage Lender product director Steve Griffiths said self-employed borrowers already felt “let down” by the mortgage market, with a report the lender did in 2018 revealing one million self-employed people had reconsidered their employment status due to uncertainty.

He said it was even more important for specialist lenders to have wide criteria that could cater to a range of circumstances. He pointed to The Mortgage Lender’s new residential range, which caters for self-employed, complex income borrowers and those with credit impairments.

Analysis by Mortgage Solutions has showed that in light of the pandemic lenders have scrutinised the income of the self-employed, especially when it comes to government support.

This has led some borrowers to believe that they are being shut out of the market, however, brokers canvassed by this publication earlier in the week said that this shortage would likely be a short-term blip.

The mutual launched mortgages for those with a five per cent deposit for a limited period in June last year, before withdrawing two days later due to high demand. 

The products launched today include a two-year fixed rate at 3.67 per cent and a five-year fixed rate at 3.87 per cent. 

These deals have no arrangement fee and offer a free valuation. 

Saffron has also relaunched two of its first-time buyer products at 90 per cent LTV with lower rates. These include the two-year fixed product with a rate of 3.57 per cent and the five-year fixed at 3.77 per cent. 

They have the same incentives of a free valuation and no arrangement fee.   

Tony Hall (pictured), head of mortgage sales at Saffron Building Society, said: “We have been planning a return to 95 per cent lending for some time and wanted to make sure we had the best possible products to come back to the market with.” 

Self-employed and contractor range 

The lender also launched a couple of two-year fixed rate products to its self-employed and contractor range at 85 per cent LTV. 

The self-employed offering has a rate of 4.17 per cent while the contractor product is priced at 4.07 per cent. 

The mutual will accept self-employed borrowers with one to two years’ accounts, while those with three or more years will qualify for a standard owner-occupier mortgage. 

Hall said the mutual’s commitment to the self-employed during the pandemic was something to be proud of. 

Rather than striking off borrowers because they had taken a loan or seen reduced trading, Hall said Saffron looked at cases on an individual basis and based decisions on whether grants had been spent or business had recovered. 

He also said Saffron made sure to engage with borrowers to let them know of any criteria or underwriting changes. 

He added: “Our commitment to those who are self-employed has always been something we are very proud of and will continue. Whilst some have had issues with other lenders rejecting applications, we have taken a common sense approach to our lending.  

“Our dedicated BDM team have worked solidly throughout the last year with brokers to ensure they know what they need for a successful application and what additional information can help with an application. Doing this has meant we have provided a mortgage to those who may have been rejected elsewhere.” 

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. 

Research by LV found that millions of mortgage holders and private renters are worried about money and feeling stressed and anxious.

However, a large proportion of renters, freelance workers and self-employed people don’t have an income protection product to provide an income if illness or injury leaves them unable to work.

Only 12 per cent of mortgage holders and five per cent of private renters say they have income protection, while 5.7 million or 87 per cent of self-employed people, sole traders and gig workers don’t have income protection.

LV’s says its new income protection product, which is designed to help pay mortgage or rent payments if illness or injury prevents the insured person from working, is “simple and affordable”.

Developed with feedback from financial advisers, LV Mortgage and Rent Cover offers income protection with no minimum hours worked or proof of income required, either when applying or making a claim.

As part of the application process the adviser will need to validate that the cover amount does not exceed the customer’s mortgage or rent payments, and obtain documentary evidence from the customer to support this, such as a copy of their mortgage offer or tenancy agreement.

If the customer is unable to work due to an illness or injury, their rent or mortgage payments will be covered up to £2,000 a month for a maximum of one or two years per claim. The amount of cover can be adjusted by the customer during the lifespan of the policy to account for life events, such as moving house or rent increases.

Debbie Kennedy, protection director at LV, said: “Working patterns have been transformed over the past 20 years and there are millions of freelance workers whose incomes fluctuate. Many would struggle to meet their mortgage or rental payments if illness or injury prevents them from working.

“LV Mortgage and Rent Cover is the first product of its kind, focusing on under-served groups who are more prone to income shocks. It is designed to provide protection and peace of mind for people who worry about paying their mortgage or rent, if illness or injury stops them working.”

She added: “As millions of households opt to rent their homes and working patterns change, it is vital that protection providers adapt and innovate to suit the needs of advisers and their clients.

“We’ve stepped up, started from first principles and thought again about how income protection can best serve policyholders. With LV Mortgage and Rent Cover, we can offer reassurance for consumers seeking to protect their mortgage and rent outgoings.”

The first comment was a response to this week’s Marketwatch piece which asked a range of brokers whether they expected more product transfers this year.

Paul Barnden said: “I’d like to think that it isn’t a key difference with Just Mortgages in that they carry out a detailed review. Surely this is what every broker should be doing, if not they are betraying the trust of their clients.

“I am a sole adviser practice and feel privileged to have the trust of my clients. Whether it is a new purchase, remortgage or product transfer, for both buy-to-let and residential mortgages, I follow the same process to ensure that I am providing to the best of my ability a comprehensive service to my clients.”

Barnden added that he recently had a client who had spotted a five-year fixed product transfer with Virgin Money, but after going through a check, Barnden found a more competitive remortgage product with Santander which that saved the client around £50 per month.

He added: “If I had chosen to cut corners, he would have been none the wiser and I could have earnt more from the Virgin Money product transfer than the Santander remortgage, but it is all about doing the right thing.”

“I have no doubt that the majority of brokers would have done exactly the same but as John Phillips may be alluding to, I believe there could be some advisers who chose to earn the quick buck provided by a product transfer and should this be the case this is not a good outcome.”

He concluded: “That said, product transfers will always have their place and for those whose circumstances have changed, potentially making them unmortgageable, they offer a much needed financial lifeline.”

Self-employed borrowing potential ‘hindered on massive scale’

The second comment was to the news that Natwest would release a new proposition for self-employed borrowers in August.

Paul Smulovitch said: “It is so sad that the self-employed have had their borrowing potential and opportunity to borrow hindered on such a monumental scale when these are the same people that are the backbone to creating business and investment opportunity.”

The bank does not currently lend to those who have applied for a Self-Employment Income Support Scheme (SEISS) grant on or after 14 July 2020, which was the second round of the initiative.

In an update today, a spokesperson for NatWest said a change to its self-employed offering would be coming next month which would require borrowers to have been back in work for at least three months before applying. 

This comes after the bank told Mortgage Solutions it would look at its criteria.

A spokesperson said: “We are currently reviewing our policy and we expect to launch a new proposition in the first week of August to help more self-employed people, whose existing businesses have been impacted, to be eligible to apply for a mortgage.

“We will require that they have now been operating for at least three months leading up to application, to enable an appropriate assessment of affordability. We are committed to helping customers to meet their financial goals and enabling them to achieve home ownership, particularly for segments of the market for whom home ownership has felt far out of reach in recent months.” 

Self-employed woes

A report from the BBC yesterday highlighted that a number of high street banks were excluding self-employed borrowers from taking out mortgages because they had received a government grant. 

This report followed articles from Mortgage Solutions which found brokers were dissatisfied with the options that have been available to these clients over the past year. 

Santander and Bluestone are two of the few lenders willing to overlook the challenges self-employed workers faced during the pandemic, by disregarding accounts for the 2020/21 financial year. 

Steve Seal, managing director of Bluestone Mortgages said: “It sadly is little surprise that at the times people need mainstream lenders most, they are let down by them. It has been clear to us for many months that a post pandemic world would see more potential homeowners unable to fulfil their dreams because furlough and self-employment would mean traditional lenders would say no.  

Seal urged the market to “think more holistically” about the self-employed. 

He added: “We recently updated our lending criteria to support self-employed borrowers impacted by Covid-19 and those returning to work from furlough as we believe we all have a moral duty to do what is right by them.” 

Other lenders said while there was no policy-based exclusion of those who had taken grants, they were reviewing applications from the self-employed on a case-by-case basis. 

John Penberthy-Smith, chief commercial officer at Saffron Building Society said the mutual was assessing self-employed and contractor mortgages on their merits. 

He added: “Working closely with brokers, we have accepted many self-employed, contractor and furloughed employees as our underwriting and intermediary team work closely during the application to get as much detail about their individual situation as possible.” 

Analysis by Mortgage Broker Tools (MBT) showed that in June, the largest average loan size available to all borrowers was £243,250. This was a four per cent uptick on the maximum that could have been offered in January. 

However, the percentage of lenders able to meet this loan amount fell from 80 per cent in January to 73 per cent in June. 

For first-time buyers, the largest average loan rose 13 per cent to £261,290 in June primarily driven by the return of high loan to value (LTV) products. However, while 86 per cent of lenders were able to provide this amount in January, just 72 per cent were able to do so in June. 

The trend of fewer lenders willing to provide maximum loans was seen across all borrower types. 

For home movers, the maximum loan available increased from £285,860 in January to £292,149 in June but over the same period, the proportion of lenders able to meet this dropped from 82 per cent to 74 per cent. 

For the self-employed, the largest loan sizes grew from £221,400 at the start of the year to £233,300 last month. 

Over the six-month period, the percentage of lenders meeting this requirement for the self-employed fell from 71 per cent to 69 per cent.  

For remortgagors, the average loan size actually decreased from £192,065 to £188,500. However, there was still a decline in lenders providing this amount as this dropped from 86 per cent to 83 per cent. 

Tanya Toumadj (pictured), CEO at Mortgage Broker Tools, said: “Even though the lenders are loosening restrictions and offering larger loan sizes, borrowers are finding it harder to secure the loan size they require, and we’re seeing fewer lender options available than we did at the start of the year. This isn’t because borrowers are asking for more – the average requested loan size hasn’t changed. So, what’s happening? 

“As we emerge from the pandemic and lenders evolve their criteria and risk appetite, we’re seeing an increasingly diverse approach to affordability calculations and this means borrowers, with their own unique set of circumstances, are able to secure very different loan sizes from one lender to the next. The good news is that the average maximum loan available is higher now than the start of the year and, while the number of affordable lenders is falling, there are still plenty of affordable options – if you know where to look. 

“Comprehensive and accurate research can prove the difference between a mortgage enquiry successfully progressing to completion or falling at the first hurdle.” 

IR35 rule changes came in this April to ensure contractors paid the correct tax if the work they carried out for a company resembled employment. 

Under IR35, a person can be deemed as employed based on conditions including how easily they can be substituted, the provision of their equipment and how exposed the worker is to financial risk.

Halifax’s amendments are effective from 9 July and mean contractors can be treated as either employed or self-employed for income verification depending on their circumstances. 

The general definition of a contractor includes those whose income comes from a contract, they pay their own tax, or they are employed via an umbrella company that deducts their tax, or they are workers who are essentially employed but are on a fixed or short-term contract. 

Borrowers will be treated as self-employed by Halifax if they pay their own tax, they have more than one contract, or if they have set up a limited company which employs other contractors.  

In this instance, income verification will remain in line with existing self-employed policy. 

Halifax will deem clients as employed if tax is paid on their behalf by the company they work for or they are employed by an umbrella firm that deducts tax.

Borrowers will also be considered employed if they earn more than £500 a day or £75,000 per year. They are also classed as employed if they are IT contractors on any income, regardless of the tax structure or if they consider themselves to be self-employed.

This follows a recent ruling where an IT contractor working for Nationwide had to pay £74,523 in income tax and National Insurance Contributions after losing an appeal to be deemed self-employed.

The only exemptions for those earning more than £500 a day, £75,000 a year or IT contractors will be borrowers with more than one contract or those who have set up a limited company that employs other contractors.  

Customers will also be considered employed if they have 12 months or more continuous employment, with six months of the contract remaining. People who have two years of continuous services in the same type of employment will also be treated as employed, as per existing Halifax criteria. 

Contractor income verification 

Where a contractor is considered employed for income verification, this will need to be checked either with a copy of their latest contract and payslip, or bank statement if a payslip is not issued.  

The income will be calculated based on a 46-week year. 

The lowest figure of either the calculated gross value of the contract or income will be used for affordability.  

Those who work on a fixed or short-term contract or through an agency where tax is deducted by the employer who is not an IR35 umbrella firm will have to show their latest payslip to evidence income or last three payslips if other income is being used. 

Members of the construction industry must provide the last three months’ payslips and corresponding bank statements, and an average will be calculated.

There will be no changes to income verification for borrowers on a zero hours contract. 

Updates will apply to full applications submitted from 9 July. Any decision in principle entered before this date then submitted as a full application after Friday will be subject to the new criteria. 

Further advances submitted after this date will also be subject to the changes. 

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.”

Lending attitudes

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.