Insight and events

The numbers of individuals classed as self-employed continues to grow. However, self-employed workers have arguably been overlooked by a majority of lenders, failing to provide the necessary support, or products to match their demands.

See how we look to support those self-employed clients.

Being self-employed has its obvious benefits: the freedom and flexibility to choose jobs and hours to name a couple. However, the one major downside is that it can be more difficult to access lending. Many credit-worthy borrowers can struggle to secure finance due to a lack of a consistent monthly salary to provide proof of ability to repay a mortgage. This is where your role as a broker becomes vital. 

Self-employed buyers will often go to a broker as their first port of call. They understand they have more complex finances, and that brokers have the lender relationships necessary to know who would be willing to lend. Crucially, they also know that brokers will be able to guide them on what they must demonstrate to have the best chance of being approved.

So how can brokers help?

Specialist knowledge pays dividends 

Many high street lenders are hesitant to lend to what might be perceived as ‘riskier’ groups, such as the recently self-employed. But there are other lenders available that can be more flexible and willing to assess on a case by case basis. Good brokers have existing relationships with specialist lenders and can pinpoint those that are able and willing to cater for complex client needs.

Brokers are also able to keep abreast of product changes, and therefore know which lender has a suitable product for their client’s specific circumstances. This knowledge is invaluable.

Making the most from lender relationships to improve client outcomes

Once brokers have identified a supportive lender with the right product for their client, the goal is to guide the client through the process as quickly and smoothly as possible. This involves presenting the best possible case for getting the mortgage approved. There are several steps brokers can follow to do this.

Make sure your client is using a chartered or certified accountant. Most lenders won’t accept information from a book-keeper, so try and ensure they are using a professional who will be accepted by the chosen lender. An accountant will also ensure that all the accounts and self-assessment tax submissions are up to date before the bank is approached.

Lenders will also look at information on tax returns. Whilst these used to be from HMRC’s SA302 forms, lenders have now been told to look at an accountant’s own systems for tax year overviews. Therefore, it’s best to check that the client is aware that the accountant has this information before applying.

Some lenders will accept individuals if they have been self-employed for a minimum of 12 months. If this is the case, the accountant will typically need to provide a finalised set of accounts for the first year as well as an income projection for the following year to the lender. Having these to hand helps to speed up the process.

If your client’s business has made a loss over the last few years, or has seen a reduction in net profits, an explanation will need to be provided to the lender. This does not necessarily mean the client won’t be approved for a loan. However, they should check with their accountant about this prior to an application being made just in case.

Additional considerations to improve results

There are also additional details brokers should consider ahead of submitting an application to ensure it meets a lender’s expectations and approach.

• For full-time employees lenders will want to see a salary history. If this isn’t possible for those who are self-employed, some lenders may want to look at the company’s accounts to see if it has a positive net worth. Having a positive assets vs liabilities figure can be crucial in getting a loan approved.
• Some lenders don’t treat contractors as self-employed; instead they’ll use the contractor’s daily rate as a guide for salary.
• For contractors under the Construction Industry Scheme (CIS), the client must have kept and filed the vouchers as the lender may want to see this during the underwriting process.

The self-employed have been under-served by the mainstream mortgage market. As the number of self-employed grows, brokers will be more important than ever in helping them access finance, and guide them through the application process.

When doing so, the devil is in the detail. Making sure the client has all the necessary documentation prior to submitting an application will make a significant difference.