Prospective homebuyers who applied for the government’s self-employment grant during the Covid pandemic are being refused mortgages by the UK’s leading banks.
The Self Employment Income Support Scheme (SEISS) has been a lifeline for millions of workers who have seen their monthly income rocked by coronavirus restrictions.
Yet workers who have received the SEISS grant are being left frustrated when applying for a mortgage, as their hopes of moving house are dashed by high street lenders.
Self-employed applicants say they are getting a “blanket no” from lenders at a time when many in England and Wales are hoping to take advantage of the stamp duty holiday extension.
Here we take a look at how hard it is to get a mortgage this year if you’re self-employed, what lenders are looking for and if there’s light at the end of the tunnel as lockdown restrictions ease.
Is it difficult to get a mortgage if you’re self-employed?
Dan Ellis, 28, a freelance theatre maker from Derby, and his wife Emily are looking to buy their first home together - but have been left frustrated by lenders.
“The mortgage companies are giving us a blanket no,” said Dan, who applied for a grant through the government’s Self Employed Income Support Scheme (SEISS).
“There wasn’t a mention anywhere that this might be a consequence from taking the grant.”
The couple, who are currently renting a semi-detached house in Derby, are talking to a third broker about buying a three-bed property around the city.
“We were told the self employed grant was the equivalent to the furlough, so why aren’t we being treated in the same way? That’s the question I’d put to Rishi [Sunak],” said Dan.
“The furlough scheme and the self-employed schemes have been lifelines for people but perhaps the government didn’t know that there’d be this scrutiny.
“The biggest frustration is that lenders aren’t looking beyond their tick boxes a lot of the time.”
Are lenders taking savings into account?
Dan says that he and Emily, a supply teacher, have a deposit saved and their prospective monthly mortgage payment would be a third less than what they are currently paying each month in rent.
“They have to sort something out because they’re excluding a huge proportion of the population,” he said.
“If things don’t go back to normal in a few months time then there’ll be uproar, and the government might have to step in because wasn’t it in this government’s manifesto to turn ‘generation rent into generation buy’? Well, they’re not going to do that if they don’t get it sorted.”
The couple have been NatWest customers for 15 years and were upset to hear the bank isn’t taking on mortgage applications from self-employed workers who have taken the SIESS grant.
When asked about its policy, NatWest confirmed: “As it stands we aren’t accepting applications from customers who have applied for a SEISS grant on or after 14 July 2020.”
The bank says it’s reviewing its policies for self-employed customers who have applied for a SEISS grant and “looking to update our policies and affordability calculators in the near future to better support these customers”.
“We do continue to consider other forms of income to support an application for self-employed customers, i.e. rental, employed income or other businesses,” a statement added.
Who is setting out the policy for mortgages at present?
Currently, it seems, the criteria set out for mortgage applications is determined by the individual lender and will take into account each applicant’s individual financial circumstances.
The UK’s independent financial regulator, the Financial Conduct Authority (FCA), told NationalWorld.com it doesn’t have specific guidelines on the issue.
“The role of our mortgage rules is to set out how lenders must assess affordability to ensure that borrowers only take out mortgages they can afford to repay,” an FCA statement read.
“The decision to lend is a commercial judgement for firms, with each lender responsible for determining the borrowers they wish to target and the pricing of their loans.”
The FCA acknowledged that some customers may find it more difficult to borrow at present, as lenders will take into account if borrowers will be able to continue to make payments once government support ends.
What will lenders look for on mortgage applications?
Lenders, typically, will look at the last two years’ accounts of self-employed workers and figure out their average annual earnings, which at present includes 2019/20 and 2020/21 tax years.
It means the Covid pandemic could still be impacting self-employed people’s mortgage applications until 2023 - unless a change in lenders’ thinking occurs.
Nick Dobbie, director of Fife-based A Plus Financial Planning, says lenders will want to see the last three months of business bank statements to see if income at least equates to 2019/20 figures.
“The problem is if you have taken any sort of government support on those bank statements then lenders will generally decline you right now,” he said.
“This is annoying as some businesses are being encouraged by their accounts to grab what they can, even if trading has been reasonable, and this is then causing problems at mortgage time.
“A little more common sense [from lenders] to see how the business is trading without the government's help would make sense.”
Mr Dobbie recently had an actor client who was told by an accountant to apply for a grant, only for the money to come through and stop the mortgage application in its tracks for three months.
Why is it so hard to get a mortgage?
Stories of similar nature are widespread as many lenders focus on the cold, hard numbers.
The limited space there once was for self-employed people and small businesses to plead their case has been squeezed further in a strictly criteria-led risk assessment.
Resolver consumer expert Martyn James says lenders are currently returning to type.
"The problem with the mortgage industry is that, like most financial services, it’s very conservative, so whenever there’s a hint of trouble the rules tighten," said Mr James.
“And when that happens loads of people get squeezed out.
“So this is a common theme which has happened many times over the past years and certainly over the last year it’s happened to many people.”
What impact does the economy have on lenders’ thinking?
Brighter economic forecasts could provide some hope for applicants, with the Bank of England reporting recently that March experienced a 2.1% growth to the economy.
“As a general rule, the fact that you’ve taken on government support in these unprecedented times, along with millions of other people, should not mean that you’re prohibited from financial products,” said Mr James.
“But, having said that, it would be very difficult to prove because the fact you’ve seen a drop in your wages might mean you don’t qualify for a loan or a mortgage based on the company’s criteria.
“So, on the one hand, you shouldn’t be penalised but, on the other, the fact that you’ve not had any money coming in apart from government support might have an impact.”
Self-employed people and small businesses finding it hard to get a mortgage at the moment are not alone in taking on state support, Mr James adds, suggesting that it’s worth applying for a mortgage through a broker who has experience of the changing landscape.
He said: “It’s become increasingly important to get a mortgage broker who specialises in business lending because they’ll know the deals on the market and the quirks of the lenders.
“If you don’t go through a broker then it’s worthwhile having a look on comparison websites and the deals available for businesses, and contacting them directly.
“You can call their business team and explain the situation that you’ve taken on government support and see if it prohibits you or if it’s still feasible to put in an application,” he added.
Is there light at the end of the tunnel for self-employed workers?
As lockdown restrictions continue to ease, helped by the Covid vaccine rollout and low infection rates, confidence is returning among lenders and consumers.
Bank of England economist Andy Haldane predicts the UK economy will grow faster than the months after the Second World War and the rate of increase could reach double digits.
Mr Haldane said: “A year from now, it is realistic to expect UK growth to be in double-digits, activity to be comfortably above pre-Covid levels and unemployment to be falling.”
It all points to a stronger economic bounce for the months ahead.
“The good news is that some common sense is starting to kick in,” said Mr Dobbie.
“One of the main lenders has confirmed that if current three-month business bank statements demonstrate an income that stacks up to 19-20 levels, if 20-21 has been affected by Covid but the more recent bank statements show things back to pre-Covid levels, then they will ignore 20-21 figures and work to 19-20.”
Mr Dobbie says, on the flip side, lenders are still working on a reduced loan to value of 75% for self-employed, which is under constant review.
“Lenders do want to lend, within reason, and I do expect more lenders to adopt a more flexible approach as we ease out of the pandemic, which should mean self employment is not the barrier to getting a mortgage that we might expect,” he said.
“It is a changing situation out there and lenders will adapt their policies, I am sure. Loan to values may be a little tighter initially but that too I would expect to ease over time.”
Is now a good time to buy a house?
The housing market has enjoyed a mini-boom largely thanks to the introduction and subsequent extension of the stamp duty holiday, saving buyers from forking out for land tax.
Yet many experts have said this government tax relief, coupled with a shortage of houses, has driven up property prices across the UK at a time when more space has become a premium.
Mr James advises anyone applying for a mortgage to stop and think about it.
“All of my economist friends feel that the market is overheated and it’s been overheated by the stamp duty holiday extension and 95% mortgages,” he said.
“What that’s doing is pushing the prices up.
“My personal advice is unless your situation is dire, and even then you might want to consider renting for a little bit, speak to your accountant and take a step back for three to six months.
“This is because there is a significant chance that once these measures all start to end the market might drop considerably.”