Backing self-employed borrowers

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Business owners have had to adapt the way they work during the pandemic, with nearly half (46%) having changed their business model to survive. A significant minority (13%) said they’ve completely changed the way they work to continue trading.

Despite these efforts, two in five (41%) don’t think they will get back to their pre-covid revenue levels soon. And worryingly, a third (33%) admit they don’t have savings to last them up to three months if they didn’t work, and 16% have no savings at all.

Mixed experiences

Some self-employed sectors have seen increased demand and business during the last year. With solid accounts they shouldn’t struggle to get a mainstream mortgage.

But significantly more people who work for themselves feel less confident now compared to before the pandemic (38%) and another 37% told us they feel about the same.

For some of these borrowers, the crisis may have affected their ability to repay their mortgage.

A quarter (25%) of self-employed homeowners needed to take a mortgage payment break during the past 12 months, but the majority of them (71%) were able to resume paying as normal, while 29% needed additional help.

Lenders recognise that a bad year last year doesn’t necessarily reflect a higher lending risk and that while many businesses have struggled, a large number have also done well. But mainstream mortgage lenders with automated underwriting systems aren’t always able to give nuanced consideration to applications. Tighter criteria reduces their risk but it limits the options for many good self-employed borrowers.

What was already an uphill struggle could be complicated by the change affecting some self-employed clients – IR35.


IR35 impact

IR35 aims to tackle ‘disguised employment’, where contractors benefit from tax efficiencies and employers don’t pay National Insurance or provide employee benefits, such as sick pay and holidays.

Hopefully, your self-employed clients already know what the changes mean for their income. But they might not have considered how that will impact their mortgage eligibility. Their affordability may be reduced and, when combined with the current restrictions on self-employed borrowers, the overall impact could be significant.

It makes sense for brokers to be proactive and get in touch with contractor and freelance clients now to see if they’re aware of IR35 and if they will be affected.

Specialist support

At Aldermore, we champion the self-employed because we know they put everything into their business and all of our mortgages are available to those who work for themselves.

We take the time to listen to the client’s story, to understand their finances and business before we make a lending decision. That includes how they’ve been affected by the pandemic and IR35 changes, for example.

Our experienced underwriters look carefully at self-employed applications and aren’t restricted by lending criteria that excludes too many good borrowers.

We lend to contractors with at least six months remaining on their current contract and we take retained profits into account.

We’ll consider lending based on the last year’s income, although your client will need to have been in business for at least two years and be able to show us they can afford their borrowing.

Having taken a SEISS grant, a bounceback loan or a payment holiday shouldn’t preclude clients from borrowing either, so we’ll look at their accounts and ask why they took the funds or opted for a payment pause and how things are going now.

Our door is open to your self-employed clients, and we are looking to lend. We want to know their story and, even if they’ve had a challenging year, how they are getting back on track.

Jon Cooper, Head of mortgage distribution, Aldermore

Want to know more?

You can read our self-employed research results in our report

And if you want to know more about IR35, our article gives more insight into this topic

 

FOR INTERMEDIARY USE ONLY

Subject to status. Your mortgage is secured on your property. Your property may be repossessed if you do not keep up repayments.