Self-employed and worried you won’t get a mortgage because you have been on government Covid support? Two mortgage industry insiders explain why some borrowers are experiencing problems and how you can tap into the solution
Last week reports emerged of self-employed workers who, having taken government support during the pandemic, had been turned down for mortgages.
If you are self-employed, this may feel like yet another hurdle on a course which is already littered with enough tricky challenges.
But things might not be as bad as they seem. In fact, there are actually a number of mortgage options available for those with slightly more complex incomes, or those who have been financially impacted – through furlough or loss of business – by the pandemic. It’s just a matter of knowing where to look.
We have gathered the views of two mortgage experts – a broker and a lender – who both offer some reassuring news.
‘Self-employment will grow – now lenders must meet demand’, says Hiten Ganatra, Managing Director, Visionary Finance
If you are self-employed currently, you could be forgiven in thinking that everyone is conspiring against you, as not only have many freelancers and small businesses had the toughest eighteen months imaginable, but then recent reports in the press say that high street banks are refusing mortgages – give us a break, I hear you cry!
In the last few days, it has been reported that furloughed workers and self-employed people who have received government grants during the pandemic have been refused mortgages by some of the UK’s major banks.
The article quoted that two of the UK’s biggest high street banks, NatWest and the Royal Bank of Scotland, are reportedly refusing mortgage applications from people who took the government’s self-employment income support scheme (SEISS) grant.
This is despite the Financial Conduct Authority (FCA) saying that the SEISS grant or support of this kind ‘should not, of themselves, prevent people from being able to access credit’
As of May 2021, there are approximately 4.2 million self-employed workers in the UK. In the wake of the Covid-19 pandemic, self-employment has fallen to levels not seen since the middle of 2015.
This fall is understandable following the pandemic, but we can only expect numbers to rise again and soon.
In addition, according to a report published by the Institute of Fiscal Studies, a lack of job opportunities will drive a record rise in solo self-employment (sole traders and owner-managers with no employees).
They have stated that the level and growth of solo self-employment in the UK are among the highest in OECD countries.
Could we see that due to there being a greater acceptance of remote working it will also shake up labour policy and rationalise going freelance in the first place: work-life balance?
I can foresee that after getting a taste of remote working, many workers will opt for solo self-employment over a full-time office-based working model once lockdown measures ease.
So why is it so difficult for the self-employed to obtain a mortgage? Undoubtedly, the pandemic will have caused many people difficulties and a fair number will have experienced fluctuating revenue, especially during the first lockdown period.
This causes difficulties for lenders, as upward trends are fine, but assessing viability of the borrower during a blip period is not a strength for many, especially those lenders on the high street.
Thankfully, the computer says no is not an approach used by all and we are seeing more and more ‘specialist’ lenders develop products and lending policies designed to serve the self-employed, as rightly they have identified an opportunity and a market underserved.
However, I feel that more lenders, not just specialists, need to embrace and develop products and lending criteria that enable more to obtain a mortgage.
A change in employment patterns is coming and it will last, so lenders need to adapt and embrace these changes to ensure that home ownership can be the preserve of the many rather than the few.
Worried your SEISS or furlough payments will hold you back? The building societies could help, says John Penberthy-Smith of Saffron Building Society
One of the biggest stories to feature on the BBC on Friday 16 July was a story of a distraught couple frustrated that they had been denied a mortgage due to an application for the SEISS support from the government.
The feature also talks about furloughed employees. Whilst I do not deny the story is true, I felt the need to counter some of the points that were raised.
The common belief is that the accessing of support during the pandemic would not hurt their credit rating and would not stop them from getting a mortgage.
Furlough payments, the SEISS grant, and lower income will have little impact on your credit file immediately, unless you start to pay late or get behind on payments.
The issue is affordability.
The pandemic has caused a level of uncertainty with lenders who have rigid and restrictive application processes. Now we are building back and getting back to work, these pre-pandemic systems are still causing many to face rejection.
Common sense lending
Looking deeper into this story, it focuses on British banks and a national building society.
What is missing from this report is the views of local, community building societies that form a substantial section of the mortgage market in the UK.
Many will have a mortgage from these societies that they successfully qualified for through their chosen mortgage broker.
Saffron Building Society, along with all lenders, rely heavily on brokers for our mortgage applications.
When the government, or the media (much like this BBC story), talk about banks and building societies, it does not consider this vast market.
So, those looking to get a mortgage or remortgage often assume the media will be speaking for the whole market. In this case that was untrue.
Although we smaller societies follow the same set of standards and are guided by the same regulations and governance as any larger banks, we operate a common-sense approach to lending.
All lenders are looking to get the right fit for the customers. However, larger financial organisations, who deal in volume, also want you to fit through their automated systems.
However, smaller building societies are able to take a bespoke approach looking at every individual manually on their merits, to see how they work against their criteria. Not every application is the same, so this provides everyone with the fairest chance of success.
Find a respectable mortgage broker
Mortgage brokers are in a unique position in this country. They are a vital resource for a mortgage applicant, be that a first-time buyer, remortgage customer, a self-builder or those who are self-employed or contractors.
Brokers have access to a wide range of lenders and can compare products that you will not find on the high street through banks.
Saffron Building Society conduct all its mortgage applications through brokers, which means our products are not available to our applicants directly.
In specialist circumstances, using a broker could help to ensure your application is more successful, as the broker will have a firmer understanding of the lenders who have more fitting criteria and underwriting processes.
Are you concerned about your SEISS or Furlough income?
Although SEISS or furloughed income are a reality and are going to have an effect on applications, it is not the end of the world.
Lenders will look at your case on an individual basis and provide you with a personal outcome that is realistic to you are the situation you are in right now. If that is a rejection, it might not always be the end of the road.
If I were to offer one piece of advice, if you are keen to get on the property market right now, it would be to speak to a broker.
Many are worried about the additional cost of using a broker for a mortgage application. Do not be. It may not cost as much as you think.
In fact, our sister brokerage service, Saffron Mortgage Finders offer fee free advice. Using a broker will save you time and could save you so much money over the term of the mortgage, as they may find a much better product with the resources at their disposal.
Do not rely on the media; speak to the industry. We know the true story, and it is not as bad as you think.
Visionary Finance can be contacted at 01908 465100 or at info@visionaryfinance.co.uk
