Copy article

Mortgages and the self-employed - a bad match?

Journalist: John Fitzsimons, Freelance

ended 14. March 2023

Hello team

Data from Mortgage Broker Tools suggests that things have got much tougher for self-employed borrowers since the mini Budget (https://www.mortgagesolutions.co.uk/news/2023/03/13/unaffordable-self-employed-mortgages-up-a-third-since-mini-budget/)

It would be great to get your thoughts on the situation at the moment. 

Are there enough lenders active in this area of the market? 

Are the products competitive?

What are the conversations you're having with self employed clients at the moment?

What changes could lenders make which would improve the prospects for your clients?

All thoughts are very welcome on this!

10 responses from the Newspage community

Copy all

Star Quote
Copy

Editor
Mike Staton
Director at Staton Mortgages
There is a big myth surrounding the mortgage industry that it is harder to get a self-employed mortgage. Any mortgage is difficult to obtain if you have unrealistic expectations or you aren't declaring and earning the correct amount. We have had no issues with self-employed mortgages unless it has been placed with the NatWest who do not appear to have moved on from Covid. They are asking for everything but the kitchen sink. If you are self-employed and want a smooth process, stay clear of the NatWest and see an independent broker, preferably one above a cab shop.
Copy

Editor
Justin Moy
Managing Director at EHF Mortgages
Almost every mortgage lender will have options for the self-employed and will have access to pretty much the same range of products, but what does differ greatly is how they assess what the self-employed can borrow. With the Covid years still featuring in the historic income assessed for the self-employed and company owners, the use of average profits over the past few years can make it prohibitive. A number of smaller and specialist lenders have taken a more positive approach, looking at the years before and after Covid to look at the realistic profit and turnover figures in normal years. Products from these lenders are more expensive than mainstream lenders, but the borrowing capability can be as much as double the amount high street lenders will offer. Many will look at last year's performance in isolation, which is more realistic.
Copy

Rhys Schofield
Brand Director at Peak Mortgages and Protection
When some lenders are still asking if clients took out an SEISS grant yet couldn't give two hoots about whether, at the same time, someone spent multiple months on furlough, it's clear that they still treat the self-employed as second-class citizens unfortunately.
Copy

James Vince
Managing Director at Castle View Finance
Self-employed mortgage advice is pretty straightforward and an area we see lots of in the specialist space. A lot of property investors are self-employed, low earners and tax efficient with their income and investments. With the right access to lenders and a good understanding of a lender's criteria, it is possible to source and complete in this area. There can be confusion in the 'how many tax returns are needed', 'retained profits and share of profits' along with the standard 'Covid fall out', if the adviser is used to these complex income structures then the availability of product is pretty good. You may not find the standard high street adviser has had enough training or exposure to these areas to be able to offer a suite of solutions. Several high street banks and building societies are offering market-leading products.
Copy

Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
I deal with lots of self-employed clients, especially barristers, and haven't seen any particular tightening of lending for them compared to employed clients, with all lenders happy to arrange mortgages for both types of borrowers. It is also worth mentioning that the interest rates and mortgage deals remain the same for both borrower types: there are not different products for employed and self-employed borrowers, the only change is how the lender assesses their income. What we are seeing is more and more lenders offering improved affordability for certain market sectors. For example, Hodge has recently joined a small number of lenders with improved affordability for certain professionals while Kensington has special deals for "heroes", e.g. the armed forces, the police, fire service workers, NHS staff and teachers.
Copy

Graham Cox
Director at Bridging Hub
Like all borrower's, self-employed applicants face strong headwinds at the moment, mainly around affordability. For example, last week we had to tell a client that, for various reasons, they could only borrow a little over two times their joint income. This is when most banks and building societies use a loan-to-income multiple of 4.5. There's still a reluctance by lenders to ignore the 'Covid years' for income assessment. It would also help if more lenders would work with the latest year's net profit and salary figures for company directors. Many still average the last two to three years, even where profits are rising year-on-year. Or they use salary and dividends. Lots of company directors retain profit in the company and restrict their dividend payouts for tax reasons, so this works against them.
Copy

Anil Mistry
Director and Mortgage Broker at RNR Mortgage Solutions
Self-employed individuals and business owners have access to the same products as employed applicants with most lenders. However, some lenders may decline an application if the applicant has received a Self-Employment Income Support Scheme (SEISS) grant, although others may still consider the application if the business is back in operation. Our firm specialises in mortgages for self-employed individuals and business owners. During our consultations, we request that clients provide us with their full company accounts, tax calculations and tax year overviews. This allows us, as brokers, to assess the most suitable approach and select the appropriate lender, whether it involves net profits and salary or salary and dividends. It is crucial all self-employed individuals and business owners seek advice from a broker rather than go direct.
Copy

Samuel Ewen
Managing Director at Rosehill Financial Services
Self-employed clients already have it hard enough, but we've seen criteria changes that have had a negative impact. For example, we had a lender in mind for a case recently and were then given the heads-up that the particular lender was changing their criteria to no longer allow for company net profits to be used, which then heavily reduced the client's maximum lending figure with that lender. That said, it's mainly the assessment of income where it becomes tough for the self-employed. They'll still have access to the majority of mortgage products that an employed client would, however, it's just a case that lending figures can vary significantly from lender to lender.
Copy

Austyn Johnson
Founder at Mortgages For Actors
Self-employed people have been penalised since day dot. This is due to lenders just not being able to understand how their income works. Clients could be earning the same every year for the past 10 years, but if the latest three months don't show the same income, it gets declined. Awful. Lenders need to spend a little more time looking at the whole picture. When this happens, they will see that self-employed is more secure and actually a better choice when looking for secure income. Self-employed people can't be fired or made redundant. They can diversify the very next day and barely take holidays. Stop streamlining and start spending more time looking under the bonnet. It's the fair thing to do.
Copy

Amit Patel
Adviser at Trinity Finance
I'm surprised that some lenders still frown upon self-employed borrowers and make life difficult for them to obtain a mortgage. Some lenders are still asking whether their business was impacted by Covid and if they took any grants. Self-employed borrowers must seek the advice of a mortgage broker who can secure the best lender for them.

More High Street lenders should take into consideration the latest year's figures for affordability, but sadly the majority take an average of the latest 2 years.