"Business owners will be able to provide two full years’ accounts with quite probably no Covid influence at all."
The self-employed affordability map has always been more complex than a 'standard' employed case, but the level of complexity is probably higher now than it ever has been, with an almost bewildering range of attitudes from lenders to this client type.
According to the latest data from MBT Affordability, 37% of self-employed mortgage enquiries fail to find an affordable option for the loan size that is requested.
The Covid pandemic and associated national lockdowns and support packages are, of course, part of this equation, and there are still lenders that discriminate against sole traders for example, who quite legitimately received the EISS grant in the 20/21 tax year.
What about all those employed clients who received furlough during the same period? The way they received their money of support may be different money, but surely the principle is the same?
Employed clients often only need one month's payslip to prove income, even if they have had issues in previous jobs. Also, anecdotally, many people would say that self-employed clients are a better risk, certainly in those professions where demand is outstripping supply (construction, etc).
Most brokers would probably say the majority of their self-employed clients are trading at pre-covid levels and taking an average of the last two fiscal years for affordability purposes, could be looked upon as unfair, as Covid was the reason the figure took a drop in 20/21 tax year. An employed client with regular variable income, which they didn't have in 2020 or 2021, often only has to show a three-month track record for this income to included and, at very worst case, proof of bonus etc over the last two years.
Limited company directors have seven different ways of their income being treated and so tend to be better served, but retained profit is still a 'no-no' for many lenders. This class of client is often described as the 'backbone' of the British labour market, so it will be interesting to see if lenders change their attitude once the 2022/2023 tax year has completed, and business owners will be able to provide two full years’ accounts with quite probably no Covid influence at all.
Covid no longer has any bearing on an employed client's affordability, no matter whether they were furloughed for six months, made redundant, lost bonuses, etc., so why should the self-employed client continue to be treated differently?
We are all hoping that with the dawn of the new tax year, those lenders that are restricting income multiples, and other negative treatment, for the self-employed clients will, from next month, change their attitude to look at these very important clients more favourably.
Self-employed clients are vital to brokers as it is obviously trickier for them to go direct to lenders, because of the inbuilt complexity, so they need professional help.
Let’s hope improvements come through from next month, especially against the backdrop of a tricky market.