99% mortgages: will the seasoned self-employed ever see sight of them?

Lenders always see self-employment and contractors different to those permanently employed due to the risk of variable and inconsistent income. The truth is, very few lenders do these type of mortgages well and truly understand these types of employement which is a shame as it is a big market. Yet another desperate attempt at a vote-catcher rather than coming up with something with serious legs but the devil, as always, is in the detail. Affordability and stress testing is more the issue than the deposit for First-Time buyers in most areas due to the house prices. A 1% deposit is dangerous as most would take a long term of say 30, 35 even 40yrs so the borrowers actually pay little off in the early years so there is a high risk of either negative equity or being a mortgage prisoner if not modeled correctly. Serious thought should be given to some of the most vulnerable buyers and the focus should be on Housing being a senior department rather than using it as an election bribe.

Most banks would look to offer these mortgages, as they would be protected by guarantees from Government. Therefore there is no reason to believe that self employed borrowers would be any less eligible than their employed counterparts, similar to current 95% mortgages. The biggest issue will be the maximum borrowing that is deemed affordable will not be enough to obtain 99% of most house prices, so the scheme will likely only benefit a minority of borrowers, similar to the current 100% offering for renters that most are not eligible for. There would be no protections from negative equity to borrowers, and the scheme could inflate houseprices escalating the problem they face further.

If launched, there would be a widespread uptake from banks and building societies, offering mortgages backed by the scheme. The 1% deposit will unlock opportunity for many who've been unable to save a larger amount, and the question then is down to affordability and credit worthiness. Self-employed applicants will be accepted just as they are now, any deviation from that would frankly be discriminatory. A 1% deposit does carry an element of risk, with the prospect of negative equity in the earlier years, but mortgages backed by this scheme will be subject to monthly capital repayments, increasing equity month on month. If this scheme is launched and sunsequently reversed by a new Government, they'd be playing with fire. It will be hugely popular from day one, allowing homeownership opportunity to tens of thousands, who otherwise may not be able to follow their dreams of owning their own home.

A lot depends on what risk the government takes away from lenders. If this is strong enough then there is no reason why these would not be offered to those self-employed. However I think this is going to be a case of buyer beware - I cant see how you can offer a 99% mortgage, take away risk from lenders and offer significant protections to mortgage holders if the worst happened - the goverment may as well just take ownership of the housing stock if that happened.

We specialise in working with both first-time buyers and self employed / company directors. We see no reason why these high LTV mortgages won't also be available to the self-employed. In the same way as is currently the case with 95% LTV mortgages, self-employed borrowers will need to demonstrate at least one year of profitable trading (preferably more) and meet the affordability requirements of lenders for the loan amount they need.

Lenders have become more pragmatic over recent years when dealing with self-employed / company directors. A good example being lenders who will look at the net profit a business has made rather than the actual dividends drawn. This means that company owners are not penalised for being tax-efficient and drawing only what they need.