The recent budget certainly put the economy, businesses and personal finances firmly in the spotlight, not that they have ever been too far away especially over the past 12 months. I won’t delve into budget-related announcements as these have been fully dissected by now but it’s important to maintain our focus on lingering issues facing potential new borrowers and existing homeowners.
When you see national media headlines like ‘Money lenders shun the self‑employed for being too complex and too risky’ it’s clear that there is still work to be done. This particular story in The Times centred around a case study involving a couple of self-employed voice coaches whose income had dropped dramatically over the pandemic. And there are thousands of similar stories across the breadth of the UK.
With the majority of 2020 and the early part of 2021 having a significant impact on many individuals’ income and financial situations, we anticipate that an increased number of clients will require specialist residential finance going forward. This is apparent for purchasers and those looking to remortgage who do not meet stricter mainstream mortgage criteria.
And the issue is certainly not reserved to borrowers in the lower income range. In fact, data suggests that the higher net worth individuals are seeing increasingly higher levels of delay and rejection in their mortgage applications. When focusing on high net worth individuals (HNWIs), research from Butterfield Mortgages recently outlined their struggles when it comes to successfully applying for a mortgage. The data suggested that a fifth (18%) of the HNWIs surveyed had been rejected for a mortgage in the last ten years, which is 6% higher than similar survey results in 2019. Of the HNWIs who have successfully or unsuccessfully applied for a mortgage in the last 10 years, 51% said they had at some point been turned down.
So why would these individuals be rejected? 63% of HNWIs said they had trouble securing credit because of their complicated income structures which are not simple monthly pay cheques. This is in comparison to a national average of 42%. 78% of HNWIs believe that banks lean too heavily on “rigid ‘tick box’ methods”.
More than a third (35%) of individuals in the UK who made mortgage applications in the last ten years, said it had taken three months or more before they heard back on whether their application was successful or not. This figure jumped to almost three fifths (58%) for those with investments worth over £100,000. Consequently, 62% of HNWIs have “lost confidence in high street banks’ ability to cater for the needs of property investors and buy-to-let landlords”. This indicates a huge opportunity for mortgage intermediaries who can introduce these clients to the right specialist lender.
This dip in high street lending confidence has certainly not been ‘lost’ on the specialist lending market. Lenders operating in this space are constantly evaluating their policies and product ranges to cater for borrowers with multiple or unusual income sources including those who have recently become self-employed and employed people with high commission, bonus and/or overtime.
From regular communications with our intermediary partners, we realise that demand has steadily grown from clients with increasingly complex income scenarios, and this demand will continue to rise due to the pandemic and resulting economic conditions. Thankfully, many specialist lenders are adjusting accordingly. For example, here at Foundation Home Loans, we have one of the broadest income allowances of any lender, allowing advisers to use 100% of an extremely wide range of income source types for their residential clients. We accept retained profits and one year’s accounts for the self-employed and for the employed, we only require people to have been in employment for a minimum of three months.
We are not the only lender to have made such moves and it’s great to see competition intensifying, criteria becoming more sensible and a wider range of options emerging for various borrowing types. Where the borrowing needs of the self-employed and those with various income streams are too complex for the high street, it’s vital that specialist lenders continue to step up to the residential mortgage plate.
George Gee is commercial director at Foundation Home Loans