It’s time to be open with self-employed applicants
By Tony Hall, Head of Mortgage Sales at Saffron Building Society
Nobody can deny recent years have had a significant and disproportionate impact on self-employed mortgage applicants. The pandemic lockdowns, and the effect these had on businesses, will be a continued issue on the accounts of companies for a while still.
Pairing this with rising material costs and trade expenses following Brexit, many businesses are seeing a significant impact on their bottom line. It has meant that self-employed business owners are taking less salary and dividends.
It has been a turbulent time for the self-employed, and our sector is noticing it. It is reflected in a recent survey of mortgage brokers by Cherryplc.co.uk, which found that 24% of brokers considered self-employed applicants the most difficult to place, just ahead of those with poor credit. It is not a dead end for self-employed applicants; however, it just requires brokers to be more engaged with lenders and open with applicants.
Find the right lender and product
The larger lenders, including high street banks, can be harder to place cases and can be more ridged in their application process. Specialist lenders, including building societies, offer products that offer more flexibility in their criteria. Some - like Saffron - provide an opportunity to present at least 1 year of accounts, as opposed to the 2-3 years’ worth required for many products in the market. Last year we went a step further and offered some applicants the opportunity to discount the pandemic year from accounts (with some caveats). We can do this thanks to our commonsense approach to lending. Every applicant is individually assessed, reviewed, and considered by our qualified team of underwriters to give every application the fairest chance of success.
Rising mortgage rates and affordability
The self-employed aren’t shielded by the rising interest rates, with specialist self-employed and contractor mortgages subject to slightly higher rates. With the increasing base rate raising SVRs, affordability may be an unwanted issue. It will require support from the brokers to ensure the applicant can provide supporting materials that will reduce risk for the underwriters.
Have open conversations
The best advice we can give brokers is to expect to spend much more time on your self-employed applicants than you would with other applicants. Once you have found a lender with a suitable product, open conversations as early as possible – before making any recommendations to your client. Not only will the lender’s team be able to provide you with essential information – such as what supporting documents will be required, what accounts they would accept and for what period - but they will also help you to manage the client’s expectations.
The priority is being honest and open with the client that the market is not ideal for them right now. The time the application takes will be longer than they would expect - even since they last applied for a mortgage - as the case will be manually assessed. The standout issue we see often is a breakdown in expectations - lenders cannot process in the time the client may expect or have been promised - causing frustration and disappointment. Taking the time to speak to the lender first will help you manage those expectations. Moreover, it will ensure you are providing an educated and realistic assessment of the options, providing a positive opportunity for a successful mortgage application.
For adviser use only. Please note this content has been supplied by our lender partner and as such, is their responsibility. No party shall have any right of action against Legal & General in relation to the accuracy or completeness of the information in this article.