It has always been difficult for the self-employed and contract workers to get mortgages, re-mortgages and secured loans. But things got a lot worse at the start of the financial crisis. Banks and building societies that had been taking applicants at their word began requiring the self-employed to provide 2-to-3 years’ worth of records to verify income. Well, we have good news: self-employed loans are becoming more friendly thanks to the willingness of lenders to scale back some of their restrictions.
The 1990s housing boom encouraged lenders to be very friendly to self-employed workers and contractors for a couple of reasons. First, their numbers were limited as compared to what they are now. Second, there was so much competition among lenders to approve mortgages that they were willing to take applicants at their word. Then the financial crisis hit.
Lenders were immediately scrutinised by the government for alleged irresponsible lending that tarnished their reputations and resulted in the implementation of new MMR requirements. The new MMR meant that everyone had to work harder to get a mortgage, but the self-employed and contract workers faced a much more daunting task. Now things are changing.
Lenders Are Opening Up
In a recent article on its website discussing this very topic, the Telegraph identified a number of lenders who were beginning to loosen up their restrictions on self-employed loans. Among those lenders were big banks like Halifax, Clydesdale, and Barclays. The Telegraph also listed several building societies including Newcastle and Ipswich.
In light of banks and building societies opening up more mortgages to the self-employed, the question is one of why. There are a few mitigating factors. First is the sheer demand for mortgage products among the self-employed.
In 2016, banks and building societies approved 11% more self-employed loans than the previous year, according to the Council of Mortgage Lenders. The total number was somewhere in the region of 120,000. By the same token, mortgages made to employees in standard working arrangements increased by only 6%.
A second mitigating factor is borrowers proving they are good credit risks. Ipswich Building Society's Michelle Stevens told the Telegraph that "over the years we have identified this group of borrowers as very creditworthy, so it seems unfair to lock them out of the market."
Contractors and the self-employed are proving they are not the working poor, as they are so often portrayed. They are not living hand to mouth while having to rely on the plethora of benefits to keep them going. They are responsible, hard-working people just trying to pay their bills.
Be Sure to Shop Around
The Telegraph article provides a couple of examples of mortgage products being offered by big banks and smaller building societies. Those examples serve as a reminder of how important it is to shop around. For self-employed loans, shopping means not only the difference in better rates and terms but also the hoops borrowers have to jump through to get a mortgage.
Some lenders still require 2-to-3 years’ worth of financial records while others are willing to go with just one. There are other differences as well. It is up to the borrower to figure out what he or she needs and how he/she can meet the requirements of lenders willing to offer a good deal.
No, self-employed loans are still not extremely easy to get, but they are gradually getting easier. No self-employed person or contractor should just assume that getting a mortgage is impossible. Where there's a will, there is a bank or building society willing to lend.
Telegraph -- http://www.telegraph.co.uk/money/jessica-investigates/self-employed-can-get-mortgage/
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