Self-employed mortgages are proving more difficult to place as the Covid-19 fallout sends waves through the industry, but the obstacles provide an opportunity for brokers to prove their worth, advisers have said.
A number of lenders have tightened criteria and checks around self-employed applicants in recent weeks.
And the level of detail being requested by lenders on self-employed borrowers is now far higher than pre-Covid, according to brokers.
Higher level of scrutiny
Mortgage providers are looking for proof the business is viable, and to understand how the pandemic has affected the work and income of an applicant.
Greg Stanworth, managing director at Greenacre Financial Services, told Mortgage Solutions: “It’s a very difficult market unless we can absolutely prove there hasn’t been much of an impact from coronavirus; it does prove to be quite difficult to get the mortgages through.”
Lenders want to know whether the business has taken government help and under what circumstances.
Stanworth added: “Lenders are asking for much more proof that the business is sustainable, and whether it has returned to normal income levels – along with evidence to support that such as business bank statements.”
Mike Brown, director at Crystal Clear Financial Services, agreed there is much more work now involved in self-employed cases.
The fact-find is much more extensive and there is more interrogation of clients from lenders.
He added: “It’s definitely more challenging.”
However, Corby Macdonald, managing director at broker firm Vickers Young, said there is still a good mortgage market for the self-employed.
He said: “I don’t think anyone’s being disenfranchised by being self-employed…
“The banks are just doing their due diligence in the current environment.”
Macdonald added: “Lenders are introducing more checks, but it’s only fair – they’re cautious at the moment.”
Some lenders better than others
HSBC and Santander were among lenders singled out as being more accommodating and flexible towards the self-employed market.
But the key is working out if “a case has got legs or not and knowing which lenders are going to be more understanding”, Brown said.
Macdonald said: “Every lender will do something different… some will do one years’ account, others it’s three years’ accounts.”
The products are there, it’s just a matter of brokers knowing where to look, he added.
James McGregor, director at Mesa Financial, said: “The market is definitely a bit more challenging at the moment.
“Although we have found lenders are being good when you can explain situations of the business.
“We now ask for business bank statements with all companies and make sure they are back to pre-Covid levels or that their cash hasn’t depleted.
“This usually gives the lenders confidence on using the previous figures. I would say affordability has been a much bigger issue at the moment, with lenders massively tightened up around this.”
Opportunity for brokers to shine
Within the tougher market, there’s a significant role for brokers to play in “demonstrating the value of good quality advice”, according to Brown.
He said: “The complexity of getting a self-employed mortgage is off the scale – from the pre-app through to getting the result for the clients.
“There are still good advisers doing due diligence, but the amount of work we are doing has increased.”
Brown added he felt this market demonstrated the value of broker fees.
He said he’s turning away very few people at the moment, but it’s not usually a matter of yes or no – instead he is helping applicants to understand how they can qualify for more if, for example, they pull together a 15 per cent deposit rather than just 10 per cent.
Macdonald agreed the role of the broker is crucial in helping the client better understand the market and where they fit into it.
He said: “The main job as the broker is to find the solution. Sometimes you can’t find the mortgage, you have to have find the solution – and that means helping the client to get their circumstances to fit.”
The key is to look in the right place – the right place is a broker, according to Macdonald.
He added: “You’ve got to deal the hands your dealt with – finding a solution for the borrower might not mean getting what they had initially wanted, but it’s our job to explain how it works and puts them in a better position…
“These are unique circumstances at the moment – but it won’t be this way forever.”