Boris cancelled Christmas last year, but have mortgages for the self-employed been cancelled due to Covid?
Well, if you would have asked me that 6 months ago, the signs were not very good, especially if my client had taken advantage of a SEISS loan for example. However, and I can only stress, at this moment in time, the risk departments of mortgage lenders are being pushed into a corner and we are seeing some sort of resemblance of sensible lending practices returning.
So what are the chances of a limited company director or a sole-trader gaining a reasonable mortgage?
Well the first thing to say is that, in my too many moons of being a mortgage adviser, I have never seen such a difference in lending practices from one lender to another, so shop around. The good news is that lenders are looking to lend and that’s the important point. Yes, the amount that you can borrow, based on income, is generally less than if you were employed, but not massively and the actual interest rates being offered, are the same as those being offered to PAYE applicants. The differences for the self-employed are about what hoops you will need to jump through.
Most lenders are now wanting 3 months business bank statements and here is the important part; the lenders are scrutinising your business account to see if the turnover in the 3 months bank statements is comparable to income being generated into the business when looking at previous years’ tax returns.
If your business is back up and running at a comparable level then the lender will be happy, but you may get declined if not. In addition some lenders will be asking the following questions:
- Has there been any SEISS loans or other grants showing?
- Is the applicant’s business from an industry that was affected by Covid and could that business be affected again if there was another lockdown?
If the answers to these are all ok, then a mortgage is very much available, but I stress that it is on a lender by lender, case by case situation.
For example one main lender’s criteria (Santander) is as follows: ‘Where the business has taken an SEISS, JRS grant (for limited companies) or Bounce-back, BBIL or CBIL loans in the 12 months prior to the date of application the application will be declined’.
Other lenders, such as Halifax, do not have this criteria so it really does depend on who you approach for your mortgage.
Most lenders are back to the traditional route of assessing income and will require 2019/2020 and 2020/2021 Tax Calculations which show a sole trader’s or company director’s income in a simplified form and use the average of the last 2 years, or the most recent years income, whichever is the lower.
Coventry Building Society take an alternative method and will look at the net profits after tax for limited companies which may be higher, especially if the maximum amount of dividends has not been taken by the director(s).
In terms of deposit, the vast majority will lend with just a 10% deposit, but again Santander are an example of one of the most cautious on the high street, requiring a 25% deposit if one of the applicants is self-employed.
So in summary, if you are self-employed and looking for a property, bear in mind that lenders are nervous and really ensure that your business accounts are in good order and if you can, avoid having any Government grant payments within the last three months. Obviously if this is critical to your business then now is probably not the best time to move either.
Finally and I would say this, shop around and take advice. As an adviser it has been the most difficult 20 months to keep up with the criteria changes that were happening, sometimes, weekly. I have not even touched on other the criteria questions that effected employed applicants, such as being on furlough. However the good news is that lenders are still lending, it’s just tougher and fingers crossed that the storm cloud over any other variants is not going to cause lenders to revert back to being scroogies in the New Year.
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Date Published: 8 December 2021