The Good, The Self-Employed and The Underwriter

What an exciting few days!

The end of lockdown is upon us, as Scotland went beyond Level 0 on Monday.  We can now meet freely indoors and outdoors.  Nightclubs reopened at the stroke of midnight for the first time in 18 months. It’s a party!For those self-employed hustlers out there though, it’s certainly not as exciting if you’re looking to obtain a mortgage. Have you ever had a neighbour who smiles at you during the day and who invites you to their get-togethers whenever they awkwardly can, but will be the neighbour who calls the police if they hear a little music from your place or a slight noise past 11 PM? That’s how lenders have become when advertising themselves to self-employed applicants. You see, although the economy might need liquidity now more than ever in order to recover, lenders have become a lot tougher about lending to self-employed prospects.

There are now considerably more hoops to jump through and more things you’ll need to prove, to be eligible to get a mortgage. (i.e more documentation to provide and tighter affordability).In the financial world, lender Skipton Building Society entered the market with a 95% LTV deal for new-build houses. This is huge news as for 18 months, no lender has allowed less than a 10% deposit on a new-build home.

This is wonderful news for our clients who have wanted to reserve their dream home and have been patiently saving for their deposit.   But, any mortgage and protection advisor will tell you that the choice of lenders is limited for self-employed people, compared to pre-pandemic lending. Don’t be put off though.  Advisors are appointed for this very reason, it’s their duty to research the market well, before placing your mortgage application anywhere.

For example, Some lenders will consider you self-employed if you own 25% or more of a business. However, the definition of “self-employed” changes from lender to lender. It’s incredibly important that your mortgage advisor does their research extensively.

Some important things to bear in mind, when you’re self-employed and applying for a mortgage:

• If your business has to file accounts, make sure your latest ones are done. Know what you’ve taken on in SEISS grants and what you’ve used the money to do.

Sole traders should have their SA302s filed too.

• For day rate contractors, you can be considered employed with some lenders.  Make sure your advisor does their research.
• The last three months of bank statements reflect the level of business you have.

One thing we’ve also encountered more of is the rejection of Covid grants as income for lenders.

Cameron McLean, Managing Director of McLean FS, comments;

“Each lender views Covid grants slightly differently, however overall we’ve found that most lenders won’t accept them as income.”

One of our recent self-employed clients is proving to be trickier than usual.  However, a seasoned advisor will know when to push back with underwriters and how to appeal decisions.

Especially when the underwriter is asking the following:

• How does the house move affect the commute to work?The short story is, it doesn’t and the underwriter would be able to see that by comparing the address of the new home and the place of work.
• The Covid grants have inflated profit, so we can’t lend as much.  Our answer to this is diplomatic - especially when referring to the nature of business, and it’s a type of business that has flourished under lockdown.

It is frustrating to deal with such questions, especially when it comes across as lazy underwriting or a sorry “the computer says no” attitude.  Cameron believes that a calm and measured approach is the best way to deal with a situation like this.  Should that fail then a call to the business development manager with a timeline of events, record of conversations can help to move a case in the right direction. We find the view of lenders counteracts with what the Covid grants were set up for in the first place. The grants were implemented to keep businesses afloat during the national lockdown. Without these grants most businesses would not have survived, indeed, some have not.  The worst part is self-employed mortgage applicants are finding themselves in a position now of being penalised for taking grants.  Again research is important, a good mortgage broker will take their time to review lenders’ criteria and products before deciding which one is most suitable for you and your circumstances. The requirements to prove income for self-employed can vary, and how you pay yourself can also make a substantial difference.

For instance, self-employed individuals may choose to give themselves a salary and pay themselves dividends. But, what you might not know is that some lenders will use the share of Net Profit which could be more.At the beginning of the pandemic, Protection Providers were postponing cover from going live, because of Covid-19. Frankly put, they were stalling. Providers were asking clients to come back in 3-6 months after contracting Covid to review their applications. But, the good news is we’re now starting to see this being eased off.

Less and less of our clients are having their meetings postponed or their cover stalled. And some more good news is that we at McLean FS haven’t come across any providers who take issue with vaccinated people either applying for life insurance, critical illness cover, income benefit or any other insurance.What we know for sure is that it’s a difficult landscape to judge, and one that we are constantly needing to adapt to, to stay ahead. We have wanted out of lockdown for so long, and we’re now beginning to take the tentative first steps required to rebuild, together.

But from an internal perspective, we as a team, are looking out for each other and being mindful of others needs, circumstances, trials and boundaries.  And we’re applying that same mindset and approach with our clients. Make sure your mortgage and protection advisor is doing the same, it might be the reason you secure that loan and protect your family.