The mortgage industry has seen immense change over the last 18 months and with the uncertainty prompted by the pandemic that extended well into 2021, an area that we’ve continued to see real demand for more information about is mortgages for the self-employed.
We know that mortgages for the self-employed are more relevant than ever: if you look back at 2001, 3.3 million people were self-employed. Fast-forward to 2020 and 5 million of us are self-employed. Yet whilst being self-employed has become part of the new normal, we know that these customers still struggle: 36% of self-employed individuals don’t bother submitting a mortgage application or a remortgage application in fear of it being rejected. Pre-pandemic, things were improving when it came to securing mortgages if you were self-employed but sadly the challenges prompted by people’s changing financial circumstances have set this progress back.
We know the pandemic hasn’t helped things and research from a number of sourcing systems demonstrated the increase in enquiries around self-employed mortgages, particularly as people came out of multiple lockdowns and wanted to assess their options.
There are significant challenges that lenders need to confront when it comes to assessment criteria. Things simply aren’t clear cut: you can put customers in either the employed or self-employed box and label one as safe and the other as risky. In reality, whilst some self-employed people have been hard hit by the pandemic, many have managed to grow their business as a result: just consider the difference between the owner of a local bar versus someone running a PPE import business.
Then consider how busy the owner of a hairdressing salon has been the past few months versus the day lockdown ended and you begin to get a sense of the nuanced picture! How lenders assess affordability and risk is a big point of contention, and something that needs ongoing monitoring in light of the implications of the lockdown on people’s financial records.
With so much changing at such pace, it can feel hard to keep up. Many customers are apprehensive about their mortgageability and are uncertain about the impact of receiving bounce back loans, mortgage repayment holidays and the changes mandated by IR35. Intermediaries who help customers navigate their changing personal circumstances will be hugely valued. We must remember that some people have taken grants and payment holidays because they can and were in fact advised to – not because they necessarily needed it.
For me what is crucial for the self-employed market is looking at each mortgage on a case-by-case basis, and there will be an increasing significance of manual underwriting in the new world of mortgages that we’ve entered into.
Whilst tech has a role to play in improving the mortgage process by enabling us to access more datasets and review them more efficiently, manually underwritten lenders are in a far stronger position compared to their robo-advisor counterparts. Why? Because moving beyond box-ticking exercises to get an accurate, current picture of someone’s personal circumstances gives you a far better indication of risk at times of uncertainty. The key is gaining a real insight into what’s going on and the viability of someone’s business, finding answers to the questions that matter. Are things sustainable? Can the business stand the test of time or is it just current circumstances that are causing pain points? In the world of business, we often get caught up in corporate structures and lose sight of the fact that we’re dealing with people and their lives. With greater complexity comes the need for reassurance and the team at Kensington Mortgages will continue to meet the needs of people the high street can’t always cater for.
Our continued support for the self-employed market has been demonstrated as we’ve adapted and enhanced our proposition to reflect the challenges posed by the past 18 months. Means tested Government support such as bounce back loans and grants can be included in the customers income, and we’ve launched an Income Recovery product specifically for those customer who are self employed and have seen a decrease in the year on year accounts, allowing them to use an average figure where this provides a more favourable affordability result.
As we look ahead to the curtain coming down on an eventful 2021 and begin to plan for the future, it’s important to remember: we’ve been here before! Post-credit crunch, self-employment figures shot up as people sought out new ways through which to secure income. We’re anticipating a similar trend post-Covid and the mortgage industry must be ready for the rise of the self-employed once again. The changes in the marketplace present great opportunity across the industry and we are looking forward to working with customers and intermediaries to secure the outcomes that so many self-employed people deserve as we move forward into a new era of mortgages.
Chris Kirby – Key Account Manager, National Accounts & New Build
Chris has over 10 years of experience working in Financial Services, predominantly in the Mortgage Market, first as an advisor before moving into the Intermediary sector for both High Street and Specialist lenders. Since joining in 2017 he has continued to strengthen Kensington’s relationships and expand the brand as an innovative and forward-thinking specialist lender.
