‘Bounce Back’ mortgage responds to self-employed application woes
More red tape on the cards for self-employed mortgage applicants.
The UK’s five million self-employed will have to go through more loops and provide more account information when applying for a mortgage following post-COVID market conditions.
Some lenders are shutting their doors completely to self-employed or contract workers. Others, however, are taking another approach by not only lending an ear to short-term self-employed worker woes – but mortgages.
Despite being described as the backbone of the UK economy, the self-employed will have to go through more hurdles when applying for a mortgage, with many banks only accepting 80 per cent of self-employed income as proof of earnings, asking for bank statements from during the lockdown and requiring additional checks by underwriters, it has been reported by news sources and mortgage brokers.
Barclays, HSBC, Metro Bank, TSB, Coventry Building Society, Virgin Money and NatWest have all tightened restrictions and others have stopped accepting irregular forms of earnings, such as commissions, freelance work, overtime or bonuses, The Times Online has reported.
Mortgage broker, Alex Winn, of Habito told product comparison and review site Which? that self-employed borrowers now face “more hoops to jump through than ever before” and banks, such as NatWest have introduced pre-application questionnaires with many others adopting manual underwriting for self-employed applicants.
Winn suggested that lenders are also requiring self-employed applicants to provide details of their turnover for the past three months in addition to historic accounts, to see how their earnings have been affected by COVID-19.
Another mortgage broker at L&C confirmed that many banks may be willing to accept applications from people who have used the government’s self-employed income support scheme (SEISS), subject to evidence being provided.
Steve Giles, of Swanland Mortgages in East Yorkshire, says that he is finding it difficult to help some clients because many lenders have ruled out self-employed lending altogether for the time being, or are not willing to make common-sense decisions based on someone’s qualifications, experience and trading track record overall.
As of July of this year, there were 36 specialist mortgages currently on offer for self-employed workers or contractors, according to Moneyfacts and Which? However, there is no such thing as a self-employed mortgage, just mortgage lenders and underwriters that will consider lending to those that work for themselves, are contractors or long-standing freelancers.
However, some mortgage lenders are approaching the self-employed mortgage market in a different way. One example is Beverley Building Society, which claims it is featuring “fresh criteria” aimed at helping some of the five million self-employed workers in the UK, many of whom have been affected by COVID-19.
People with complex incomes, including the self-employed, accounted for 50 per cent of the Society’s lending last year.
Beverley is convinced that after hearing more personalised background stories of potential customers, it will have a clearer picture of an applicant’s ability to be a good candidate for a mortgage, so they can “achieve their homeownership aspirations and get their businesses back on track.” The personalised approach could be its USP compared to larger outfits.
“As a smaller Society, our approach is based on being able to take the time to really listen to people’s whole stories and make common-sense decisions on even the most complex cases, in order to do our best to help,” explained The Society’s head of Lending, Graham Carter.
The Society was prompted to respond after feedback from brokers and customers highlighted a need for solutions to help the significant number of self-employed borrowers struggling to secure mortgages because many lenders had “frozen them out”, viewing them as high risk.
Beverley said brokers have suggested that this view is short-sighted, however, given that in many cases a strong trading track record overall and a resilient spirit makes them strong prospects for lending despite recent developments.
“Seeing the impact this crisis has had on this vital segment of the UK economy, we just felt like we needed to step in, and came up with this new offering to do exactly that,” said Carter.
Potentially open to people with as little as one year’s trading history, the new scheme is aimed at helping both established and newly self-employed people, the latter of which have been left out of the SEISS.
The products available at Beverley include the potential for owners of established businesses to start with lower, interest-only based payments for the first 12 months. Beverley said this offering was to “allow some breathing space for the army of professionals, contractors and tradespeople who need it.”
• From one year’s accounts up to 75% LTV for the newly self-employed
• First 12 months’ payments interest-only and LTVs of up to 80% considered for established businesses
• Range of discounted two and three-year deals available
• Affordability calculated on capital & interest basis
• Lending decisions made on basis of longer-term trading track record, industry, professional qualifications and experience, and future prospects
• All trades and professions considered
• People whose business has been temporarily impacted by the pandemic welcome to apply.
Freelance Informer suggests that you do not provide any personal, company, or banking details on any digital application or even the Society’s site unless your antivirus and website security shows the building society’s site to be secure. If at all in doubt, ask a reputable mortgage advisor or broker to provide you with secure access to any application or ask them to request a secure link directly from the Building Society before providing any personal details.
Stamp Duty: the new rates
If you purchase a residential property between 8 July 2020 to 31 March 2021, you only start to pay Stamp Duty Land Tax (SDLT) on the amount that you pay for the property above £500,000. These rates apply whether you are buying your first home or have owned property before.
Self-employed & Contractor Mortgage Tips before applying for a mortgage
- Improve your credit rating before applying: pay off as much credit card or other debt; hold off applying for store credit unless you lack a credit history.
- Do not suddenly switch company structure (sole trader to limited company) just before applying.
- Ensure you and anyone applying with you is on the Electoral Roll
- Do not be shy with info: show the whole picture of your earnings over the past few years: bank statements, invoices, other accounts, accountant filings on your behalf to HMRC and savings
- Limited company applicants must provide full business accounts and balance books, so working with an accountant or specialist bookkeeper for self-employed clients prior to applying for a mortgage is widely advised.
- Provide evidence of your credentials, projects, your website, existing and previous contracts, your CV
- If you can provide a higher deposit, this could help your application become successful as it is decreasing risk for the mortgage lender and also could help with the mortgage rate.
- Enquire about a joint or guarantor mortgage. The latter has been increasingly popular with parents of self-employed children.
- Your chances of a successful mortgage application are usually higher if a partner applying with you is in permanent employment. Have their information available.
- Do your research on mortgage lenders known in the market to lend to self-employed or contract workers.
Source: The Freelance Informer; Which?