Name: Jonathan Cornell
Company: First Action Finance
I doubt that many people in the industry will be surprised by Kensington’s figures. As the economy grows out of recession, most of the growth will come from small firms, and the self-employed will form a major part of this.
As someone who has been self-employed for a little over a year, lenders’ attitude to the newly self-employed is very disappointing. At present, self-cert is gone for the foreseeable future; with the FSA’s current stance on it, there is no point wasting time or effort arguing.
However, there is a huge difference between self-cert and asking for three years’ full audited accounts for the self-employed. Complex prime can fill this gap, as lenders will take a more common-sense approach by looking at what proof of income can be provided rather than just sticking to a one-rule-for-all mentality. The FSA has not told lenders what proof of income is necessary, so lenders can make up their own rules. There is no reason why lenders could not make more use of accountants’ certificates, management accounts and Inland Revenue data with the necessary checks.
There needs to be a more balanced approach to employed versus self-employed lending. If I employ someone to work for me tomorrow without a probationary period, then they can get a mortgage straight away, whereas I will need to wait for rather longer. Ultimately, we both work for the same business, so why are we treated differently? Brokers can play their part by lobbying, but in the end it is up to the lenders.
Name: Fahim Antoniades
Company: Mortgage Centre IFA
As a lender, when you go from being risk receptive, in order to maintain your competitive edge, to being risk averse in order to just keep afloat in the space of two years, you have to make tough decisions. There is no problem with being cautious; the issue is that with knee-jerk reactions, you get knee-jerk policy.
For example, a broker told me of a porting case where the self-employed client was reducing his mortgage from £400,000 to £300,000. The lender was quite happy to lend £400,000 three years ago, but declined to port his mortgage and reduce it by £100,000 because his SA302 (which confirms taxes paid) did not support the level of debt required under its new safer approach. In making the decision, the lender failed to pick up on some salient points.
Firstly, despite the information in the borrower’s SA302, he had saved £100,000 (a quarter of his mortgage) in the space of three years. Secondly, if he managed to pay his £400,000 mortgage for three years, he is likely to be able to afford £300,000 in the future.
Lastly, by blocking the transaction and keeping him at £400,000, does this not force a riskier position on itself as well as the client? How could he continue to afford £400,000 if the lender felt that he could not afford £300,000?
The point is that lenders need to have a more common-sense approach when dealing with the self-employed, because when you deal with income that is not tick-box, you cannot expect tick-box policy to work.
Name: Charles Morley
Company: Kensington
The type of self-cert products that were available until the end of 2009 are unlikely to return in the foreseeable future, as the Financial Services Authority has made crystal clear its hostility to the sector as it was.
However, lenders are adapting to the changed conditions, and it is not the case that self-employed borrowers are excluded from the mortgage market or that there is nothing that brokers can do for them.
Our research shows that there is potentially a considerable market to be served, and that should spur lenders to innovate and develop ways to help the self-employed, as well as supporting the responsible and sustainable recovery in the mortgage market.
Clearly, the major lenders with their reliance on automated decisions based on rigid criteria are not equipped to serve the self-employed. Lenders need to show a degree of flexibility while maintaining responsible lending standards.
At Kensington, we have built our return to lending on making decisions on individual customers’ circumstances.
In practice, this means that we will make decisions based on 12 months of accounts from borrowers instead of two or three years of accounts. We accept accounts from a qualified bookkeeper and will look at a range of income streams when making a decision.
Brokers can expect to see more innovation from lenders in the coming months as the industry realises that lending to the self-employed does not have to mean the return of old-style self-cert.
