The UK workforce is an ever-evolving beast. Changes in employment status, the opening up of ‘non-traditional’ income streams and – more recently – the uncertainty around furlough, grant eligibility and IR35 tax changes have resulted in an even more complex set of scenarios for limited company directors, self-employed people and contractors.
I’m sure we can all appreciate the highs and lows experienced by this community, especially over the past 12 months, and some of the lingering shortfalls when it comes to their ongoing mortgage requirements. To outline this, recent data from mortgage broker Haysto suggested that one in six (17%) self-employed mortgage applicants have said they were declined for a mortgage because they run their own business. It also found that a further 15% of sole traders, and 14% of directors of limited companies, said they were turned down because of their job role and that despite record levels of mortgage applications, the number of rejections is suggested to be on the rise.
Concerns were also raised in the latest MBT Affordability Index for February, with data showing that the number of cases where at least one lender is available to meet the loan requirements of self-employment mortgage applicants fell. The figures revealed that 67% of self-employed cases processed through MBT Affordability had at least one affordability option, down from 71% in January. In February, 31% of cases were deemed to be unaffordable based on the clients’ required loan amount and lenders were unable to lend on 2% of cases.
In contrast, across the whole of the market, 21% of cases were said to be unaffordable in February. The Index showed that at least one lender was able to meet the loan requirements of 86% of first-time buyers, 84% of remortgage customers and 81% of home movers. In addition, the average maximum loan available to self-employed mortgage applicants was suggested to have fallen by just over 2% in February to £216,000. However, the biggest change was the average minimum loan available, which fell by more than 18% to £96,935. This figure was highlighted as reflecting a significant tightening of self-employed affordability criteria amongst some lenders.
The big message emerging from this combination of data is that the choice of lender can make a significant difference to the availability and amount a self-employed mortgage applicant can borrow. This factor underlines just how vital it is for intermediaries to fully understand how specialist lenders such as Foundation Home Loans can meet the ever-changing needs of their clients in these challenging times. For example, we accept retained profits and one year’s accounts for the self-employed.
This is just one example of how lenders are approaching this vital, and growing, component within the lending ecosystem. More solutions will emerge from an array of specialist lenders and building societies where manual underwriting processes – aligned with flexible yet responsible criteria demands – will help fill the self-employed and complex income borrowing voids. And long may this continue.
George Gee is commercial director at Foundation Home Loans