For the self-employed or partners either looking to remortgage or those purchasing a new home, the big question is, how will lenders review their position and assess their affordability? In recent years a number of lenders have broadened their product offering and introduced greater flexibility to facilitate lending to borrowers who do not earn regular salaried income. During the current COVID-19 period this lending approach is being impacted and it may take some time before all lenders return to the levels of criteria, pricing and underwriting we have come to expect. However, there is still appetite to lend to this expanding group of borrowers and it’s critical that they approach the right lender who has the mortgage product which meets their personal financial circumstances.
How have lenders changed their policies for lending to self-employed borrowers?
Unfortunately, mortgage lenders have not adopted a consistent approach towards the self-employed. Most have tightened up significantly and seem quite concerned about all self-employed borrowers. For instance, some lenders are asking for a minimum 15-20% deposit on purchases, certain types of income, e.g. commission income, are not being recognised at the moment, and some have imposed caps on the amount they’ll lend on any application until things improve. Generally speaking, most are asking to see your latest three months’ business bank statements and are looking for a level of turnover which seems consistent with your previous few years’ turnover. However there are some lenders who have avoided making significant changes to their lending policy and adopted a “business as usual” approach with additional questions about the viability of your business going forward.
I am a partner at my firm. How will lenders assess my affordability for a mortgage?
If you’re a partner of a firm such as an accountancy practice, assuming your firm is still operating and you are still being paid, then we’ve not seen any significant changes to lending policies which would affect you in particular. Some lenders have lowered their loan to values across their lending product and some may not take into consideration anything but your basic drawings or fixed salary. If you’re looking to borrow no more than 4.5 x your gross annual fixed draw or salary, then we can still look to apply for your mortgage today. If your compensation involves a significant element of variable partnership profits/bonuses/commissions, the application process could be more complicated, however there are lenders who will consider a well prepared detailed mortgage application.
My business has been forced to temporarily cease trading; how will this affect my ability to get a mortgage?
If your business has been temporarily forced to close then most lenders will not accept a mortgage application until you can demonstrate at least three months of turnover after you’ve been able to resume business activity. However, given the government’s recent changes to the lockdown, there are some flexible lenders who may consider your position if you can demonstrate a compelling reason to show that you’re on the cusp of beginning to operate relatively normally. If you need to apply for a mortgage, we would be happy to discuss with you how to approach them.
How does the Self-Employed Income Support Scheme (SEISS) affect my ability to get a mortgage or re-finance my existing mortgage?
It is very likely to affect a current or near-future mortgage application; lenders are adopting their own specific approach in assessing your ability to afford the mortgage. On one end of the spectrum, many lenders are refusing to recognise any of your past years’ net profits at all if you’ve applied for support now. Other lenders may recognise the amount you’re receiving from the scheme as income to support your mortgage application, as long as you can prove that you usually earn this much or more by providing evidence of historic net profits for at least 2 years in your business.
If my business is required to take a Bounce Back Loan (BBL), how will this affect my ability to get a mortgage or refinance my existing mortgage?
The future expense/cashflow involved with servicing the BBL – interest and repayment of the amount borrowed – will be factored into the analysis of what lenders feel you’re likely to earn as far as net profits available to service the mortgage you’re applying for. If you’re considering applying for a residential mortgage or refinancing an existing mortgage in the next couple of years, careful consideration needs to be given before applying for the loan in your business. We can help you understand the effect the added business expense might have on your ability to get what you need for a residential mortgage.
Are larger mortgages still available?
Generally if you’re looking at a larger mortgage, say over £1,000,000, then we also have access to private banks who have been far more pragmatic and understanding of specific situations in the last few months.
Is it easy to contact lenders to make an application?
Whilst lenders are keen to assist self employed/partners with your financing requirements, they are experiencing significant pressure on their staff resources. As such more lenders are relying on and working more closely with external mortgage advisers who can prepare all the information required for the mortgage approval process. A carefully prepared mortgage application detailing your financial circumstances and relevant information about your business could increase your chances of getting the financing needed.
The above information is our understanding of the position as at 2nd June 2020. Both the government and lenders are introducing changes on a regular basis.
Get in touch
We hope you’ve found this Q & A of some help. If you are currently looking for a residential mortgage, to refinance your existing mortgage, or would just like to discuss your personal position and current options, please contact the Kinnison team at:
t: +44 (0)20 3871 2823