How can brokers help their self-employed clients get a mortgage?
Self-employed workers have arguably been overlooked by a majority of lenders following the end of self-certification. This is despite the fact that the numbers of individuals classed as self-employed continues to grow. Supported by advancement in technology and the advent of the ‘gig’ economy, the number of self-employed workers has risen from 3.3 million people in 2001 to 4.8 million in 2017. They now make up 15.1% of the working population in the UK*.
Being self-employed can have obvious benefits – the freedom and flexibility to choose jobs and hours to name a couple. However, it can also have one major downside: it can be more difficult to access lending. Many credit-worthy borrowers can struggle to secure finance due to a lack of a consistent monthly salary to provide proof of ability to repay a mortgage. This is where broking is vital.
Those that are self-employed will often go to a broker as their first port of call. They understand they have more complex finances, and that brokers have the lender relationships necessary to know who would be willing to lend. Crucially, they also know that brokers will be able to guide them on what they must demonstrate to have the best chance of being approved.
So how can brokers help?
Specialist knowledge pays dividends
Many high street lenders are hesitant to lend to what might be perceived as ‘riskier’ groups, such as the recently self-employed. But there are other lenders available that can be more flexible and willing to assess on a person by person basis. Brokers have existing relationships with lenders and can pinpoint those specialist lenders able and willing to cater for complex clients’ needs.
Brokers are also able to keep abreast of product changes, and therefore know which lender has a suitable product for their client’s specific circumstances. This knowledge is invaluable. For example, Kent Reliance recently introduced new residential prime and near prime products that includes specific criteria to assist contractors without the requirement of a minimum income and those who have only been self-employed for a year.
Making the most from lender relationships to improve client outcomes
Once brokers have identified a supportive lender with the right product for their client, the goal is to guide the client through the process as quickly and smoothly as possible. This involves presenting the best possible case for getting the mortgage approved. There are several steps brokers can follow to do this.
Make sure your client is using a chartered or certified accountant. Most lenders won’t accept information from a book-keeper, so try and ensure they are using a professional who will be accepted by the chosen lender. An accountant will also ensure that all the accounts and self-assessment tax submissions are up to date before the bank is approached.
Lenders will also look at information on tax returns. Whilst these used to be from HMRC’s SA302 forms, lenders have now been told to look at an accountant’s own systems for tax year overviews. Therefore, it’s best to check that the client is aware that the accountant has this information before applying.
Some lenders will accept individuals if they have been self-employed for over 12 months. If this is the case the accountant will typically need to provide a finalised set of accounts for the first year as well as an income projection for the following year to the lender. Having these to hand helps to speed up the process.
If your client’s business has made a loss over the last few years, or has seen a reduction in net profits, an explanation will need to be provided to the lender. This does not necessarily mean the client won’t be approved for a loan. However, they should check with their accountant about this prior to an application being made just in case.
Additional considerations to improve results
There are also additional details brokers should consider ahead of submitting an application to ensure it meets a lender’s expectations and approach.
- For normal full-time employees lenders will want to see a salary history. If this isn’t possible for those who are self-employed, some lenders may want to look at the company’s accounts to see if it has a positive net worth. Having a positive assets vs liabilities figure can be crucial in getting a loan approved.
- Some lenders don’t treat contractors as self-employed; instead they’ll use the contractor’s daily rate as a guide for salary.
- For contractors under the Construction Industry Scheme (CIS), the client must have kept and filed the vouchers as the lender may want to see this during the underwriting process.
The self-employed have been under-served by the mainstream mortgage market. As the number of self-employed grows, brokers will be more important than ever in helping them access finance, and guide them through the application process. When doing so, the devil is in the detail. Making sure the client has all the necessary documentation prior to submitting an application will make a significant difference to clients’ outcomes.
*ONS- Trends in Self-Employment