Many articles we’ve penned here relate to the tangible shock self-employed people get when they’re told they’re no longer creditworthy. Very often, it’s by their existing mortgage lender.
Their story, perhaps one you’re familiar with, has a recurring theme. In less austere times, they’ve taken out an introductory fixed-rate self-employed mortgage. Before they know it, it’s due to elapse.
Upon applying to remortgage, or set another fixed term, their lender has categorically told them it’s no longer in a position to offer them finance. At least not of that magnitude.
So what’s changed?
First, allow me to set the record straight. We repeatedly insist that:
“You need the advice of a specialist mortgage lender like us”
Unfalteringly, your response goes along the lines of:
“Well, you would say that!”
And that’s an understandable comment. However, 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!
Yes, it can be disheartening when a mortgage advisor (who looks like they belong in a classroom, not a financial institution) explains that you no longer fit the lender’s preferred customer profile. But don’t take it to heart. Well, not too much.
High Street gatekeepers: an all-too real example of mortgage rejection
Virginia Wallis, columnist in The Guardian, received correspondence from one of her subscribers 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 certain amount of financial awareness. Wallis’ response to the freelancer’s self-employed mortgage rejection 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.
To cut a long story short, the letter’s author had (presumably) taken out their existing self-employed, or even a self-cert, mortgage some time back whence. Certainly long ago enough to approach Santander for a minimal 60% LTV value mortgage against a new property and assume all would be A-okay!
They, she and her full-time employed partner, were taken aback when Santander refused them the home loan. The shock was made 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. Therefore, she thought she’d assume prominence. But because of the way she’d documented her self-employed earnings, Santander said no. At least to the terms they’d asked for.
Hobson’s choice; thank you, Santander
The couple were given two options. They could either find a larger deposit or be granted a mortgage based on her partners’ earnings alone. Either way, they needed to rework all of the figures.
Reading between the lines, the couple would now perhaps struggle to proceed with their mortgage applicatin at all. At least from the High Street. This being due to Santander stipulating that the couple either:
- increase their down-payment;
- settle for a lower mortgage offer from the bank based on a single, full time salary.
Self-employed mortgage rejection: who’s to blame?
In the example above, and in so many others we hear, the plaintiff’s three-years qualificant self-employed earnings had been put through the books. However, 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 almost useless for mortgages for self-employed people.
If you’ve not needed to complete an SA302 over any of the qualifying period, namely the last three years in most instances, your earnings won’t be used to calculate affordability.
This is true of Santander and many other mortgage lenders. The Government, through the FCA, has ordered lenders to be stricter in relation to affordability. Following their public fall from grace, many banks are doing just that. To the letter.
Never give up hope of finding your self-employed mortgage
We agree with Virginia in The Guardian column: mortgages for self-employed are hard to come by on the High Street.
However, like at so many other critical times in life, it’s not what you know, it’s who you know that opens doors.
Author: John Yerou
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.