How has coronavirus affected mortgage choices for self-employed people?

August 23, 2022

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A new mortgage deal aims to help self-employed people ‘bounce back’ and progress up the property ladder, even when they’ve faced financial difficulties during the COVID-19 outbreak.

It’s been a tough few months for mortgage brokers and borrowers, with banks cutting a lot of their deals, and home movers and remortgagers facing uncertainty.

If you’re a self-employed worker, it’s always been a little more complicated to obtain a mortgage loan, but what effect has COVID-19 had on your chances of being accepted?

Self-employed deal helps borrowers bounce back

With the property market now open again, banks and building societies are beginning to loosen the shackles and provide new deals to tempt buyers.

This week, Beverley Building Society changed its criteria for self-employed borrowers as part of its ‘bounce back’ mortgage initiative.

The lender says it will now consider self-employed applicants with only twelve months of accounts if they’re borrowing up to a more 75% loan-to-value (LTV).

Applicants with established businesses can borrow at up to 80% LTV, and Beverley will offer the very first year with an interest-only basis to assist borrowers with their income.

Beverley says self-employed borrowers accounted for 50% of its lending this past year, which lending decisions depends on trading history, qualifications, experience and potential customers.

This move could offer a significant boost to self-employed workers, especially if other lenders follow suit by loosening a few of their restrictions within the coming months.

How many mortgages are for sale to self-employed people?

There are only 36 specialist mortgages currently available for self-employed workers or contractors, according to data from Moneyfacts.

But don’t permit this to deter you. Of the 3,939 mortgages on the market, 3,877 are theoretically open to people who work with themselves.

The specific criteria that lenders adopt could be opaque, but most will need you to have a minimum of two years’ worth of audited accounts before you apply.

A handful (including Lloyds Bank, Mansfield Building Society and Kensington) will consider applicants who’ve only been trading for a year.

The table below shows the number of years of accounts you’ll need before applying for any mortgage.

Accounts required	Number of mortgage deals
1 year	353
2 years	1,550
3 years	750
Unspecified	1,202

Is it harder than ever before to get a mortgage?

COVID-19 has had a large impact on the mortgage market, so we spoke to two mortgage brokers to discover how everything has changed for self-employed borrowers.

Alex Winn of Habito told Which? that self-employed borrowers now face ‘more hoops to jump through than ever before’.

He says some banks such as NatWest have introduced pre-application questionnaires and lots of are now using manual underwriting for self-employed applicants.

In addition, lenders are requiring self-employed applicants to provide details of their turnover within the last 3 months in addition to historic accounts, to determine how their earnings have been impacted by COVID-19.

David Hollingworth of L&C reaffirmed that self-employed buyers might need to provide additional information to convince lenders that the mortgage will be ‘affordable and sustainable’ which banks are generally now going for a ‘more individual approach’ to self-employed borrowers.

He says lenders have ‘continued to support borrowers wherever they can and also have quickly adapted their criteria’, with lots of willing to accept applications from people who’ve used the government’s self-employed income support scheme (SEISS), subject to evidence being provided.

How to improve your mortgage chances

If you’re a self-employed borrower, there are some things you can do to improve your mortgage chances.

Use an accountant

Some lenders will only consider applications if you’ve got up-to-date accounts signed off by a certified or chartered accountant.

It’s common for accountants to legally minimise your declared income so you’ll pay less tax, but be warned that lower profits in your accounts could affect how much you can borrow when applying for a home loan.

Get your paperwork together

It’s crucial to get the annual tax calculations together for each year of accounts.

If your lender requires three years of accounts, you’ll need to provide three SA302 forms.

If you file your taxes online by self-assessment, you can print these off by logging in to your account. If you filed your taxes by post, you’ll need to ask HMRC to send you the forms.

Save a larger deposit

A bigger deposit will invariably boost your chances of obtaining a mortgage, but that’s particularly the case over these uncertain times.

It’s challenging a mortgage around the open market with a deposit of 10% or less right now, so as a self-employed borrower it can benefit to target a deposit with a minimum of 15%.

If you haven’t been self-employed for very long, you may find that lenders is only going to consider you should you save a bigger deposit.

Get your finances in order

Whatever your work, it’s vital that you get your finances in order before applying for a mortgage.

Ensure things are correct in your credit history, pay off any outstanding debts and close any dormant accounts.

Be careful regarding your spending habits around before you apply for any mortgage, as lenders are more likely to take this into account.

Speak to a broker

Failed mortgage applications will leave an indication in your credit history, so don’t apply until you’re fairly sure you’ll be authorized.

One option is to speak to a whole-of-market large financial company, who will be in a position to assess your money and pinpoint which lenders are likely to offer you a home loan.