The end of the government’s furlough scheme marks another step towards a pre-pandemic normality but it leaves any number of questions about the viability of businesses, the availability of jobs for furloughed workers, and of course whether those who are furloughed are even available to go back into those roles.
That latter point is likely to be relevant, particularly in a number of sectors because the latest figures from the ONS suggest there are one million job vacancies in the UK, although the IFS suggest this is mainly lower-paid work.
If furloughed workers over the last 12-14 months have seen a job that meets their needs, how many would have waited to return to their old job? And how many might also have struck out on their own, becoming a freelancer or contractor or self-employed or set up their own business, rather than waiting to see whether they had a job to go back to?
That latter point seems particularly pertinent because history tends to tell us that in times like these, many people decide to go self-employed or start up a new business. And those individuals are likely to be the next generation of borrowers that the mortgage industry is going to be charged with supporting in the months and years to come.
Just how good lenders are at servicing the needs of the self-employed is always up for debate, but certainly through the pandemic there has been a growing disquiet amongst advisers – particularly when it comes to mainstream lenders – around how their criteria/affordability/underwriting assessments might be far too inflexible for this new environment.
We recently carried out some research amongst the self-employed, via BVA BDRC, the results of which seemed to highlight these concerns.
Almost two-thirds of those self-employed people interviewed said they believe it is more difficult for them to secure a mortgage than it would be if they were employed, and three out of five said they don’t believe lenders want to lend to them because of their self-employed status.
Now this is clearly a perception, and the reality could have been somewhat different. Some of those interviewed may not have applied for a mortgage recently, but they are clearly still picking up a view that it’s going to be increasingly tricky for them.
And, when it comes to the mainstream mortgage sector, they may well have a point. For the self-employed a hard process-driven approach, which is almost wholly reliant on computer ‘scoring’ isn’t going to work. Add in the more stringent criteria that a lot of lenders introduced, around the seeing of accounts or determining the risk value of certain employment sectors, and you can see why the self-employed could have been quickly rejected.
That is not a process that can work for the self-employed and the outcome is likely to see many self-employed borrowers getting the computer says no response.
However, what was also interesting about our research was that just 14% of those surveyed said they had actually been declined a mortgage as a result of being self-employed and, this is clearly encouraging, because it perhaps shows they are securing the mortgages they need, although perhaps not from the sources they would once have relied upon.
Within the research, self-employed individuals also sent a series of messages to lenders who work more rigidly that they’ll need to change their ways. Self-employed borrowers want lenders to take full account of all their income, they want a full consideration of their working history, they want lenders to look at cases individually and they want a much greater degree of flexibility that actually ascertains the credit-worthiness of the borrower based on the facts, not on an assumption of them.
As a lender active in this space, and with the potential to see many more self-employed borrowers in the future, we would wholeheartedly agree with those responses and it’s a key part of our proposition to look at the case individually and in the round, otherwise how can you make a truthful and factual assessment, and how can you ensure that borrowers who absolutely should have the loans they need, don’t end up wondering where they go next?
Advisers, of course, play a huge role here and they need to feel confident in the lenders they recommend to their self-employed clients, because without that certainty, they will find themselves in a poor service position as well.
Overall, the self-employed should not feel they are second-class citizens when it comes to securing mortgage finance. They have as much right as the employed to own their homes, and to have competitive products to enable them to do this. Treating borrowers as a homogenous mass can’t work in this space, so it’s the lenders who can offer flexible underwriting that are able to give these would-be homeowner clients the shot they deserve.
George Gee is commercial director at Foundation Home Loans