Self-employed treated as ‘second-class’ by some lenders, brokers say

Self-employed workers are being treated like ‘second-class citizens’ by some mortgage lenders, as two-tier systems and punitive criteria leave these applicants severely disadvantaged, brokers have said.

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.

It comes after NatWest last month introduced a calculator specifically for the self-employed with loan to income multiples cut for these 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.”


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