Empowering the Freelance Economy

Contractors looking to buy a new home or switch mortgages need to spot these red flags

John Yerou of Freelancer Financials
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Photo by Ravi Kant from Pexels
  • A spike in conditional selling, whereby estate agents pressure and insinuate that buyers will have a better chance of landing a property from a vendor if they are “financially verified” in-house, means independent workers must be able spot when they are being unlawfully pressured.
  • Now that many contractors have had to join umbrella companies, they too could get the cold shoulder from high street mortgage lenders and estate agent in-house brokers. In some cases, contractors going through a normal lender have been told that their umbrella company payslips are “too complicated” and have been denied a mortgage.
  • Seasoned contractors are choosing specialist mortgage brokers over high street lenders to increase their chaces of securing a mortgage and keeping their credit rating in tact.
  • House prices rose 1.7% between January and February, according to Nationwide.
  • They’re up 12.6% in a year – or  £29,162 – to £260,230. In cash terms, it’s the biggest rise since the index started in 1991.
  •  It’s the first time this index has been over £260,0000.
  •  The price of the average home is now up 20% since the onset of the pandemic.

Independent mortgage brokers are concerned that “conditional selling” practices are skyrocketing at certain corporate estate agencies. They are so enraged that they have started to name and shame the estate agents that they say are falling foul of unlawful practices.

According to a Newspage alert, the negotiators at these agencies are intimating to prospective buyers that their offers to purchase a property will not be put forward for consideration to the seller unless they agree to additional in-house services offered, such as mortgage advice or legal services.

Some corporate estate agents are using people’s desperation to buy and the sheer strength of demand in the market to sell in-house advice, which smacks of conditional selling, which is unlawful.

Rhys Schofield of Peak Mortgages & Protection, who has a client prepared to go on the record about this practice and is building a case to present to the Association of Mortgage Intermediaries, said:

I won’t mince my words: many agents are repeatedly breaking the law and don’t give a damn about it because clients are too scared to complain for fear of missing out on properties.

Another broker, Rob Peters of Simple Fast Mortgage, goes so far as to call ‘conditional selling’ a cancer:

There is a filthy cancer in the estate agency world, which needs to be addressed.

A third, Lewis Shaw of Shaw Financial Services, goes as far to name and shame estate agent groups:

I’ve had numerous cases of estate agents trying to push financial services onto my customers; in the last three instances, they’ve all been part of the Connells or Countrywide groups, specifically Bairstow Eves, Frank Innes and Burchell Edwards.

They’re pushing this idiotic line of ‘we have to financially qualify them’ even though all the customers in question had agreements in principle.

Lewis Shaw of Shaw Financial Services

New year, same old tricks

The thing is, these practices have been around for ages, several sources tell The Freelance Informer.

“If the buyer has an independent mortgage, that cuts the estate agent out of the commission loop. In such cases, agents are deterring vendors who could otherwise sell their home,” says John Yerou, Director of Mortgage Quest Ltd (Freelancer Financials).

They’re encouraging the seller to go for the buyer who’s doing everything “in house”

John Yerou, Director of Mortgage Quest Ltd (Freelancer Financials).
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John Yerou, Director of Mortgage Quest Ltd (Freelancer Financials)

Agents are even offering vendors options of only dealing with “financially verified” buyers. All that means is the buyer is doing everything “in house” and getting a commission in some way. It says nothing of the potential buyer’s affordability.

But this also does the agents no favours. If they successfully convince prospective buyers, especially those that are self-employed that have already done the groundwork with a specialist mortgage broker, to only get denied by an “in-house” broker or lender then they lose face with the vendor.

How to spot “conditional selling” red flags and what to do about it

If you are new to self-employment, freelancing, contracting or zero-hour contracts, then you may not be aware that there are specialist mortgage brokers and lenders that cater to your special requirements.

Those that have been freelancing for some time will reach out to one of these specialist brokers when they are looking to remortgage or buy a new home. They have learned the hard way in the past that despite having a sizeable day rate of £500, high street lenders can disregard them as “complicated” applicants which can easily ruin their chances of getting a mortgage.

“Most of our clients contact us long before they have even found a property for a financial assessment on their affordability to know exactly what they can afford,” says George Yerou, Senior Mortgage Adviser at Freelancer Financials.

He continues: “Once they find their dream property they are then intimidated by an estate agent into a consultation with their in-house broker who does not have a good understanding of the freelancer/ self-employed mortgage market. This confusion can lead to our client’s offers not being put forward as they feel the mortgage is then unobtainable.”

George Yerou says he has had clients calling him in a panic after they have had a meeting with an in-house broker and felt the broker did not have a true understanding of their circumstances.

“We are fortunate that we have a lot of credibility in the freelancer/ contractor and self-employed mortgage market and often a quick call to the manager at the estate agency clearing up any confusion about the clients’ employment type with a copy of a lender issued Decision in principle often ensures the offer is put forward in a favourable light,” he says.

There are occasions however where the agents will prohibit the clients from using anyone except their in house broker and in these circumstances we do have to express to the agents these selling tactics are in fact illegal if it goes further than anything more than a simple recommendation.

Developers seem to be the worst at this.

George Yerou, Senior Mortgage Adviser at Freelancer Financials.

What affordability requests from mortgage lenders do independent workers need to be aware of during the cost of living crisis?

The mortgage adviser says that lenders are factoring in additional costs when assessing their affordability. One example of this would be that many lenders are taking into account umbrella/agency costs when assessing a contractor’s income and not working off the gross day rate.

“The lenders will ask for a copy of the latest payslip and either deduct these costs from the gross weekly/monthly pay or deduct 11% off the day rate, whatever cost is higher,” says George Yerou.

Daily expenditure and credit commitments are also being looked at more closely and affordability is decreased for those with very little credit in the background.

It’s not all doom and gloom though, he says:

“Lenders are coming to terms with the fact that house prices are increasing faster than wages and for this reason, more lenders are offering 5x income than this time last year.”

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