The economic downturn in 2020 has caused many working people in the UK to feel the pinch, but it’s been especially tough for some of those for who work for themselves. Government support has been slower in arriving for the self-employed, and in a lot of cases has been woefully insufficient to prevent usually viable businesses from really struggling.

However, there are also many self-employed people who have weathered the storm and adapted to the trying circumstances, and still enjoyed solid trading. Unfortunately, some mortgage lenders are still being punitive towards them because of assumed concerns about the self-employed in a wider economy that is struggling to cope with the debilitating effects of the pandemic.

Santander, one of the UK’s largest mortgage lenders, has been quick to implement new mortgage criteria for those who work for themselves, further complicating an already difficult process to satisfy underwriters.

Additional points to satisfy lenders include the following: -

  • For applicants who use their personal bank accounts for business transactions, they will have to highlight which transactions are business-related so the underwriter can assess business performance
  • Where tax returns are provided to prove income, the turnover of the business must also be provided, again for underwriters to assess how the business is performing
  • Additional rationale must also be provided that businesses are sustainable moving forward, with the explanation being open to further queries once provided

In addition to the above points, which have already been part of the self-employed assessment criteria for some time, there are new requirements since the announcement of the new COVID-19 Tier 4 restrictions. When a borrower states that their business has not been adversely affected by trading restrictions placed on businesses located in Tier 4 regions, they have to provide a rationale as to why this is the case. For example, if a restaurant is staying afloat by offering a takeaway and delivery service, the lender will want to know the detail.

Despite the new hurdles for the self-employed from the big lenders, mortgage offers are still being obtained by brokers who specialise at dealing with complexity. Sat Singh, Director and Founder of Smartr Finance, notes that applying for a mortgage via an intermediary, rather than directly with the lender, is more likely to deliver the mortgage offer applied for.

“What we are seeing from lenders during the pandemic, is their natural bias towards straightforward employed applicants becoming more obvious. It has always been there. For example, they have always assessed self-employed income over 2-3 years, rather than the last 3 months for the employed. This new assumption from Santander that self-employed businesses are in trouble, unless proven otherwise, is not surprising.”

“My advice to any would-be self-employed mortgage applicants, or even employees with complexity in how they’re paid, is to use a reputable broker who can navigate you through the lenders’ criteria to source the most competitive and solid mortgage option. If your mortgage application is declined by a lender, it can be more difficult to get a mortgage with a new lender.”