Self-employed grants a ‘red flag’ for lenders

Self- employed people who used government grants or furloughed employees are being penalised by mortgage lenders, which see the use of support schemes as a “red flag”.

Prospective borrowers have been shut out of the market since the crisis hit last year, with only high earners being encouraged to apply. While some lenders have begun to relax lending restrictions for the self-employed, brokers said the problem was far from resolved.

Several banks are not accepting applications from anyone who received a grant under the SelfEmployment Income Support Scheme after July 2020.

Matt Coulson of Heron Financial, a mortgage broker, said those borrowers who claimed on the scheme “signalled a red flag” to many lenders.

He added: “Mortgage providers have introduced questions around government support schemes, local authority grants, and whether employees have been furloughed. Answering yes to any of these questions is taken by the lender to mean that a business is ‘ in trouble’ and the application may not proceed.”

Some lenders now only process applications from self-employed people by a manual underwriting process, which does not generate decisions in the same way as for an employed person.

Mr Coulson added: “Some businesses had no choice but to cease trading during lockdown. But from a lender’s perspective, ticking yes to receiving some of this government support categorises you as someone potentially in trouble.”

Before the pandemic, self- employed applicants were required to provide two years of accounts to prove they could afford monthly repayments. But now lenders ask for multiple business bank statements to ensure income has not fallen. This risk-averse stance has meant some self- employed applicants are scrutinised more harshly than others.

Jane King, of mortgage adviser AshRidge, said lenders were cautious of industries such as hospitality and retail, which have borne the brunt of successive lockdowns. She added: “As it is very difficult to predict future income based on the last year, the selfemployed are not really being encouraged to apply, unless they are high earners or professionals such as teachers or doctors.

“Lenders are being much more forensic with the selfemployed, and so it is proving more difficult to get applications accepted.”