SELF-EMPLOYED TREATED AS ‘SECOND-CLASS’ BY SOME LENDERS, BROKERS SAY
People working for themselves are now finding that lenders may offer smaller loan amounts and cap loan to values (LTVs) at lower limits compared to employed counterparts.
This comes on top of having more onerous checks on affordability and viability of future earnings.
Lenders crack down on self-employed
Nationwide this week lowered its maximum loan to value (LTV) to 85 per cent for the self-employed, while leaving it at 90 per cent for employed applicants.
Brokers have also found NatWest has lower threshold earnings for the self-employed, with anyone earning £20,000 or less having earnings rejected for lending, while employed applicants under the same circumstances will qualify for loans worth tens of thousands of pounds.
Metro Bank has also toughened requirements for the self-employed, now requiring six months’ worth of bank statements, up from the three months previously needed.
Sebastian Murphy, head of JLM network, told Mortgage Solutions: “The main concern is that some lenders are victimising the self-employed and lending them less for no good reason.
“Some lenders have become totally neurotic about the self-employed.
“But there’s no evidence or data to back this up – there’s no data to say the self-employed are worse off than the employed.
“So why are lenders treating the self-employed as second-class citizens?”
Self-employed are not all the same
Some sectors, such as travel and hospitality, have undoubtedly been hit hard by the Covid crisis.
However, self-employed workers in other sectors have found business is booming in areas such as construction and healthcare – not to mention mortgages where many brokers of course work for themselves.
But advisers are concerned that some lenders are failing to take account of these key differences.
Stuart Phillips, director at BrokerSense, said: “Putting arbitrary thresholds in place for all self-employed worker is simply not fair – customers are more complicated and there’s more to it.
“You can’t use broad brushes for an entire segment of people.”
Murphy agreed that lenders are not taking enough notice of the sectors in which the self-employed are operating.
He said: “Actually, most self-employed people have done particularly well in the crisis, if they haven’t been connected to travel, tourism or catering.
“How can you label an entire group higher risk?”
Murphy is concerned the approach by some lenders could create a situation where some clients will end up lying about the impact of Covid because lenders are making these “ridiculous decisions”.
Greg Stanworth, managing director at Greenacre Financial Services, said it was unfair how some lenders are now comparing pre and post-lockdown for the self-employed through bank statements and not taking account of how these workers are paid.
For example, people working for themselves often have seasonal peaks and troughs in earnings – even without factoring in the impact of Covid – which is why it’s better to take account of a year’s worth of earnings rather than comparing individual months to each other.
As a result, Stanworth said: “Trying to evidence that someone hasn’t been impacted by Covid is tough… it’s very harsh to compare bank statements pre and post-Covid when someone [for instance] has a robust three-year track history.”
Before Covid, lenders largely would not have requested bank statements, but now many are asking to see the past six months.
Stanworth added that using different criteria for the self-employed is essentially holding a “red flag” to this entire segment of workers.
Unclear what some lenders want
As a broker it has also become difficult to understand some lenders criteria and appetite for the self-employed, according to Phillips.
He added: “In one case it feels like the lender is moving the goalposts – then not giving us any real feedback about what they are thinking.
There are ways they can communicate about what they are after, but lenders are not telling us what they want.
“It’s incredibly frustrating to then explain to clients.”
However, it’s important to note some lenders are still pulling through for the self-employed.
Halifax, Santander and Barclays were highlighted among those taking “sensible views” on applicants.
NatWest did not respond to request for comment.
A Nationwide spokesperson said: “We’re committed to supporting those looking to move home and are currently the largest lender still offering 90 per cent mortgages to first-time buyers without any volume or time restrictions.
“We need to be able to maintain our high levels of service in the face of strong demand generated by the stamp duty holiday. Affordability must be at the forefront of any decision, even more so during these uncertain times. We must lend responsibly.
“As a result, the impact of Covid-19 means that underwriting mortgages for self-employed borrowers is much more complex than before as a result of the difficulties in being able to fully assess long-term affordability in these uncertain times.
“We are therefore temporarily aligning our maximum LTV for self-employed borrowers with other major lenders in the market. As with all lending policies, we will continue to review our approach and hope to relax criteria in the near future.”
Charles Morley, director of mortgage distribution at Metro Bank says: “Metro Bank has been a long-standing supporter of the self-employed sector and we continue to offer a significant number of new loans to self-employed borrowers.
“Our mortgage underwriters work on a one-on-one basis to consider every applicant’s individual personal circumstances, to ensure that any customer taking on debt has the ability to meet their financial commitments now and in the future.”
Original source https://www.mortgagesolutions.co.uk/news/2020/10/29/self-employed-treated-as-second-class-by-some-lenders-brokers-say/?utm_source=customsell&utm_medium=email&utm_campaign=ms-first-send-2910-1603969631
UK CONSTRUCTION FACES ‘PERFECT STORM’ AS SUPPLY SHORTAGES LOOM
UK construction is facing a “perfect storm” of growing skills and materials shortages as demand for building reaches record levels driven by home improvements, the housing market and new i ...
DEMAND FOR CONSTRUCTION WORKERS CLOSE TO 20 YEAR HIGH
The staff shortage in construction is continuing to bite, with 33,000 job vacancies for the period of April to June according to the latest figures from the Office for National Statistics. It is the s ...
2021 BUILDING MATERIALS SHORTAGE: WHAT IS THE PRICE OF BUILDING MATERIALS?
Covid-19, Brexit and booming demand are combining to drive up prices for the essential materials the UK’s construction sector desperately needs. Bluebeam takes a look at the 2021 build ...
MORE THAN 160,000 STILL FURLOUGHED AT END OF APRIL
More than 160,000 construction workers remained on furlough at the end of April, new figures have shown. Data released by the government this week showed that 166,600 roles in the sector were bei ...
CONSTRUCTION LEARNERS TO GET SITE SKILLS CARDS
Construction trainees will soon be given their own skills cards to help oversee work placements. The new Industry Placement Card will help support learners transitioning from the classroom into the ...
NUMBER OF FURLOUGHED CONSTRUCTION WORKERS FALLING FASTER THAN WIDER ECONOMY
Number of furloughed construction workers falling faster than wider economy Latest HMRC data shows size industry’s furloughed workforce shrank by 15% in March The numbe ...