Self-employed mortgages and Covid-19: What you need to know

According to official figures, by the start of 2020, there were more than five million self-employed workers in the UK. More than one in seven people now work for themselves and this number is expected to rise as people set up enterprises after losing their job due to the coronavirus crisis.

Self-employment offers many benefits, from flexible working hours to ‘being your own boss’ but it can sometimes present a challenge when it comes to getting a mortgage.

Since ‘self-certification’ deals are no longer available, business owners now have to prove income and affordability when applying for mortgage finance. And, as a result of the pandemic, some lenders are making this process more difficult. Read on to find out more.

Lenders will consider self-employed applicants with one year’s accounts

In truth, there is no such thing as a ‘self-employed mortgage’ in the UK. Self-employed applicants are eligible for the vast majority of mortgage deals, just with different underwriting criteria.

If you work for yourself, you’ll typically have to provide two or three years’ accounts to a lender to support your application. However, there are lenders out there who will consider a home loan even with one year’s accounts – although the choice is lower.

Source: Which?

Self-employed mortgages and Covid-19 – expect ‘enhanced due diligence’

While there are plenty of deals available for self-employed borrowers, some lenders have tightened their criteria in recent weeks as a result of the coronavirus pandemic.

Many banks and building societies are now using manual underwriting for self-employed applicants and are asking specific questions about recent turnover to establish whether businesses have been adversely affected by Covid-19.

Common questions being asked of self-employed borrowers include:

• What industry/business sector do you work in?
• What impact has Covid-19 restrictions had on your business and what adaptations (if any) have you made?
• Do you expect any changes to your business or income once the current situation subsides?
• Are you in receipt of money from the government Self-Employed Income Support Scheme?
• Have you taken any other government help, for example, a Bounce Back loan or other grant?
• Can you provide evidence of any payment received?

At present, as well as providing historic accounts as detailed above, you may also have to show your turnover or income from the past few months. Many lenders are asking to see these figures to establish how your earnings have been affected by Covid-19.

This will normally be through the last three months business or personal bank statements, showing income and outgoings from your business.

If you have been particularly busy in recent months – perhaps your income has actually risen during the pandemic – then it can be good practice to provide weekly or monthly statements of income.

For example, if you’re a contractor, you may be able to borrow based on your current daily earnings rather than two years’ accounts.

Whatever your circumstances, Peter Bennett from Altura says that, as a self-employed applicant, you should expect “enhanced due diligence or increased checks” if you’re looking for a mortgage in the next few weeks and months.

Niche lenders launch specific self-employed mortgage products

As smaller lenders continue to innovate, a regional building society has launched a new ‘bounce back’ mortgage initiative aimed at self-employed borrowers.

For example, the Beverley Building Society will now consider self-employed applicants with just one year’s accounts, as long as you’re not borrowing more than 75% of the property value.

If you’re an established business with more accounts you can borrow up to 80%, and you can benefit from the first year of your home loan being on an interest-only basis to help your cash flow.

Get in touch

We work closely with business owners to arrange the mortgage they need – whatever their circumstances. If you’re self-employed, please get in touch to find out how we can help you. Email [email protected] or call us on +44 (0) 20 3786 7270.