We often relate the tangible shock self-employed people get when told they’re no longer creditworthy. Often, it’s their existing mortgage lender breaking the bad news.
Their stories, perhaps with which you’re familiar, have a recurring theme.
The tales begin in less austere, more relaxed times. The individual takes out a self-employed mortgage with an introductory fixed-rate.
Time flies, and, before they know it, that fixed rate is due to elapse. In a panic, they apply to remortgage, to set another fixed term.
Upon doing so, their lender tells them it’s no longer in a position to offer them finance. At least not of the magnitude they require.
So what changed between then and now?
First, let me set the record straight. We repeatedly insist that: “You need the advice of a specialist mortgage broker like us”
Unfalteringly, your response goes something like: “Well, you would say that, wouldn’t you?!”
And that’s an understandable response. But it doesn’t make our statement any the less true.
In today’s article, we’d like to prove two things:
- we can back up our argument;
- you’re not the victim of some Government hoax. Many people are “mortgage prisoners” just like you!
High Street gatekeepers: an all-too real example of mortgage rejection
It can be devastating when a mortgage advisor says you no longer fit their preferred customer profile. Especially by an advisor who looks to belong in a classroom, not a financial institution. But don’t take it to heart. It’s not personal.
Virginia Wallis, The Guardian columnist, received correspondence from a subscriber on exactly this topic. The bank in question in this instance was Santander.
I don’t know about you, but I associate readers of The Guardian with a degree of financial astuteness. Wallis’ response to the freelancer’s self-employed mortgage rejection is typical in today’s market.
It underlines how much times have changed in a relatively short time. Furthermore, it highlights how even the most cash-savvy contractors can get caught out.
The Santander Scenario (not pretty)
The letter’s author had (presumably) taken out their existing mortgage some time back whence. It could have been a self-employed, or even a self-cert mortgage; it doesn’t say. But it was a 60% LTV value mortgage against a new property the correspondent referenced.
When Santander rejected them, it stunned the freelancer and her full-time employed partner. The shock was yet greater as it was her acting as lead name on the mortgage that failed their application.
Her self-employed earnings brought in more than her contractually-salaried partner. So the couple deigned that she’d assume prominence on the application.
Because of the way she’d documented her self-employed earnings, Santander said no. At least to the terms they’d asked for.
(This is where we say: if you’d used a broker, they would have highlighted your affordability. But let’s not split hairs.)
Hobson’s choice; thank you, Santander
Santander gave the couple two options, either:
- increase their down-payment (find a bigger deposit);
- settle for a lower mortgage offer from them based on the partner’s single, full time salary.
Either way, the couple needed to rework all the figures. But the damage may already have harmed their creditworthiness.
The couple would now struggle to proceed with their application at all, at least on the High Street. One added element of risk underwriters don’t like is a failed credit search. By going to Santander direct, that’s exactly what they’d achieved.
Self-employed mortgage rejection: who’s to blame?
The example above is like so many others we hear. The plaintiff had put her three-years’ qualificant self-employed earnings through the books. The mistake was that the total income each year fell below her personal allowance.
Yes, this is a great tactic for tax-planning. It also negates having to fill in an SA302. However, with tighter lending criteria, it’s an almost useless tactic for mortgages for self-employed people.
This is the problem if you’ve not needed to complete an SA302 over any of the qualifying period. In most instances for self-employed applications, that’s the last three years. No SA302 means the lender won’t use your earnings to calculate affordability.
This is true of Santander and many other mortgage lenders. The FCA has ordered lenders to be stricter in relation to affordability. Following their public fall from grace post-2008, many banks are doing just that. To the letter.
Never give up hope of finding your self-employed mortgage
We agree with Virginia: mortgages for self-employed are hard to come by on the High Street. To a point. But, like at so many other critical times in life, it’s not what you know, it’s who you know that opens doors.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.