Some Lenders Change Policy For Self-Employed

Obtaining a mortgage if you are self-employed has always been a little more complex than if you were employed. At Resolve, we do not necessarily think that this should be the case, but we operate in a market which doesn’t always share our point of view. Unfortunately, this week we saw one high street lender take, what we believe, is a backward step when it comes to their lending criteria for the self-employed.

If you are employed, then lenders will usually lend on the basis of your income at the point of application. This can usually be evidenced via your payslips and in some instances, they may only want to see your most recent payslip. If you are self-employed though, they will normally ask, not just for more documentation but for more information on your income. If you are a sole trader then they will usually assess how much you can borrow on your NET profit. If you are a company director then this will usually be on your salary and dividend income, although some will use your salary and share of the NET profit. If you are a freelancer or Contractor, then how you are assessed will usually be based on how your business operates e.g., sole trader or limited company.

Many lenders will usually assess self-employed income on the basis of an average of the last two to three years figures. If the latest years figures show a reduction, then they will usually lend based on this. There are, however, some lenders, that will lend based on the most recent years figures provided they show a realistic and sustainable increase. While small, this pool of lenders, until this week, included some well- known High Street lenders however in recent days this one lender has changed their criteria to that of its peers and will now be taking an average of the last two years. At Resolve, we lament this step back in supporting the self-employed market because we believe it is based on a false perception of the self- employed.

Lenders have usually wanted the above because they perceive self-employed customers to be a higher risk than employed ones. In the past this may have been the case due to the security of being employed rather than running your own business. Times change though and today, the risk of redundancy or employers changing their working practices to increase efficiency, means that where in the past a job could be ‘for life’ today they very much are not. Compare this to a business owner though who, if they are running it well, has the security of that business behind them and future work diarised to rely on. Try and find a builder that you can book in within the next six months and compare the risk that their work represents to the retail worker whose employer is facing a decline in physical shoppers and rising business rates.

Additionally, we often find that employed clients would be unable to survive financially much past a month if their income were to stop whereas many self-employed customers, conscious of the impact that a reduction in income could have on them, often have in place savings and other financial reserves to see them through six months or more.

When taking all the above into account, we at Resolve believe that the self-employed should be treated fairly and proportionately to the risk they truly represent and in this we believe that it is no more or less than employed borrowers.

If you are self-employed and want to discuss your mortgage or borrowing options, then get in contact today to see how we could help.

Please note: Your home maybe repossessed if you do not keep up repayments on your mortgage.

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