Self employed? No problem.
The plight of the self-employed in securing a mortgage has been in the headlines a lot over the past month after Lynda Blackwell, a former chief of the regulator, disclosed her struggles in securing a mortgage after leaving her position at the financial conduct authority and becoming self-employed.
Blackwell was the main architect of the Mortgage Market Review, which requires lenders to take a robust stance on affordability but spoke out after having been refused a remortgage by the lender she had been with for more than two decades. Rather than consider her affordability on the basis of what she had been paying comfortably each month in the run up to the end of her previous deal, her lender refused the application, as she had been self-employed for just three months meaning she failed on income evidence criteria.
Affordability comes down to available income after expenses and on this score, Blackwell and many other of the UK's self-employed workforce pass with flying colours. The brick wall comes as a result of there being no simple way to provide evidence of this income. Virtually all lenders have a rigid policy on lending to the self-employed, requiring either one, two or most usually three years' worth of signed off accounts. In practice, this would mean you would have to be self-employed for a minimum of 18 months, due to accounts being filed six months after income is booked.
The main reason borrowers opt for a two-year fixed rate is due to the difficulties planning ahead for an unsure future. Assessing a borrower for a mortgage should never just be about whether they fit a lender's underwriting systems or average criteria. There will always be outliers that deserve and warrant our careful attention and consideration. It might take a little more work for lenders and the presence of a manual underwriter able to make a judgement call, but we shouldn't be locking out the very people in the UK who have the drive to be the leaders of our future business success stories.