Meet the Unmortgageables

As a specialist broker, we deal with clients with flexible working arrangements on a daily basis, from contractors and consultants to the self-employed. In truth and certainly of late, anyone outside the norm of a standard PAYE contract has been treated as an underclass by lenders. When COVID struck, every employed person was offered furlough, namely their job stopped and the government paid them. The self-employed found a way to continue to earn money, with some even moving into different markets to ensure their businesses remained profitable. And what did the banks do? They continued to lend to the PAYE applicants and made it practically impossible for anyone self-employed to get a mortgage. Too high risk as turnover had dropped, too high risk due to the industry they were in. In short, any excuse possible not to lend money. All the while they were happily lending to people who had not set foot in their own places of work for 3, 4 or even 6 months. And now as we see the effects of the cost of living crisis hit the mortgage markets, lenders are once again are looking for their magical unicorns, vanilla cases made up of employed applicants on basic salary only. Meanwhile, they limit lending to anyone who sits outside of this. For example, with paid commission, they may only use 50% or 20% of this or even nothing. I have seen lenders until recently lend up to 5.5 x income if you are employed and 4.49 x if you are self employed, unwittingly they are creating a 2 tiered lending system. We all need to realise that the landscape in the UK is changing: work is moving remote, hybrid, flexible and more project-based. Entrepreneurs drive the UK economy, they create jobs, growth and wealth and it's about time they were given a level playing field.

With the economy in the state it is, getting a mortgage, or at least the amount of mortgage required, has become considerably more difficult for everyone. When the Bank of England says we're on the cusp of the longest recession in living memory, lenders, just like borrowers, listen. Interest rates have increased and many lenders have reduced the amount they will lend. This is because of higher monthly mortgage payments as a result of higher interest rates and the current cost of living crisis seriously impacting affordability calculations. We know from experience that certain groups of people such as contractors and the self-employed have a more difficult time than their employed counterparts. Visa holders are another group seemingly disadvantaged as they have not usually been in the country very long before wanting to get onto the property ladder. Despite mostly being high-quality applicants, visa holders are at the mercy of lending criteria as they do not hold 'indefinite leave to remain'. Lenders have made it even harder post-Brexit with the minimum period needed to live in the UK vastly extended. Having higher incomes and higher deposits are possible workarounds with some lenders but the demise of 'Help to Buy' and tightened credit scoring makes it harder still. One lender, in particular, insists on applicants having been three years in the UK and to have two years left on their visa, which leaves little to no time to apply for those on a 5-year ancestry visa and is impossible for those on Tier 1 & 2 visas. Part of our job is to assess borrower circumstances and advise on how to meet lending criteria and pass the credit score.

Being truly unmortgageable is quite rare. Unless you are attempting to exceed your affordability or have abysmal credit, there will usually be a lending solution. When limiting a search to your bank or household names, this is where you may believe you're unmortgageable. If you can prove your income, then as long as you're prepared to go the extra mile to demonstrate this, there should be a lender willing to assist. Specialist lenders aim to win by criteria rather than rate, so they will cater for the more complex scenario. Quality speaks volumes, and competitively priced mortgage solutions will be available as long as the strength of a borrower is demonstrated. In many cases, high street lenders can lend if the facts are presented correctly and to the right individual. Often, a client is turned down simply because they have failed to show themselves in the best light.

In our experience, it's very rare for someone to be truly unmortgageable but a client's specific situation may limit the choice of lenders we can work with. The problem seems to be that too many people may speak to one or two high street banks, get knocked back and think that's it. The reality is that if you speak to a good mortgage broker with a specialism in your field, there will often be a solution. Take fixed term contractors. A good broker will know to avoid certain lenders but also that there are plenty who may look more favourably upon a contractor case. Or say you have someone who is a self-employed company director. Most lenders tend to only use salary plus dividends, which triggers a lot of head scratching, drawing a big dividend for little other reason than to support a big mortgage and thus creating a tax liability. With some proper advice, though, there are options to use salary plus share of net profits rather than physically having to draw the earnings. The moral of the story? Talk to a good broker. Even if it doesn't quite stack up now, they'll be able to lay out a plan to make it work in the future.

I had a client who was "unmortgeable" due to the structure of her previous mortgage. The clients had taken out one of the old Northern Rock mortgages where they would lend 120% of the property value. The structure of this historical mortgage is that 95% was a secured loan on the house and the remaining 25% was an unsecured loan on the same rate and term as the mortgage. When we came to remortgage to another lender with a better rate, they were restricted significantly because the lenders considered this a debt consolidation exercise and therefore restricted the amount of the loan that they could take compared to the value of the property. Had the mortgage been a traditional mortgage, this wouldn't have been an issue and we would have been able to secure them a better rate some time ago. The clients have now changed from being employed to self-employed so whilst the issue above has resolved itself with the increase in house prices and lenders changing their criteria, the client is still stuck with the same mortgage until they have one year's of accounts to show their income.

People may be "unmortgageable" with a High Street lender, but that doesn't necessarily apply if they use a good mortgage broker. Mortgage brokers have access to a wide range of lenders, but more importantly they know which lenders to avoid with an individual client and which to approach. There are lenders that will consider more complex client circumstances, as long as there is a 12-month history for contracting or self-employment. We, as a firm, specialise in mortgages for self-employed people. For a limited company director, for example, we would look at the salary and dividends taken, and the share of the net profits in the Limited company. This is in addition to any other personal circumstances. We would then approach the correct lender, which may not be a High Street lender and sometimes a broker-exclusive lender. I have personally obtained a mortgage with one-year's accounts, and post-Covid I used the latest years net-profits and salary to remortgage. In short, it is doable. The bottom line here is that if your circumstances are anything even marginally complex, such as being a contractor or self-employed, then approach a broker and don't go directly to a lender.

Overtime is a big thing that comes to mind, so many employers especially in retail and catering now only offer 15 hour contracts which as an employee you may not see as an issue knowing you can get a lot of overtime and if over time is on a higher rate then why not. Its only when it comes to mortgage applications that you may realised this isn’t as good as you initially thought. Lots of mortgage lenders will still only base your lending on your contracted hours even if you regularly do overtime, or those that can take the overtime into account can only take a % of it into account. This can be so frustrating as you may be working 45 hours a week making a vert good income but you can only borrow a fraction of what you want because the lender is basing your affordability on a 15 hour work week. I had a client like this, he was a tree surgeon on 15 hours a week regularly working 45 ADDITIONAL hours per week to support his young family, he had been working in this job for almost 2 years, however as his latest p60 was not reflective of the overtime due to him having 3 months off whilst supporting his wife after the birth of their son very few lenders could take into account his overtime ( even though he has 9 consecutive months payslips showing this). This meant he was on a variable rate struggling to refinance off, luckily Santander are a fantastic lender for this and were able to take the whole situation into account and lend the clients what they needed and more!

I help clients who work in the TV industry on short-term fixed rate contracts. They all have different ways of being paid. Some are limited company directors, some are sole traders and some are employed on fixed term contracts from anywhere from 2 weeks to 2 years and to complicate things further some are a mix of employed and self employed. It really helps choosing a broker who knows which lenders will be willing to assist in different circumstances. I’ve had a client recently on a fixed rate contract who has been advised they won’t be able to secure a mortgage when this is absolutely not the case. She is in the process of finding somewhere currently.