Getting finance is tough enough these days, but the fight is even tougher for the UK’s self-employed homeowners.
Before the market collapse, almost one in four mortgages was self-certification where the borrower did not have to prove their earnings, but according to recent media reports, the number of mortgages given to the self-employed has plummeted by 72% since 2006.
The FSA outlawed the deals last year, as many self-employed borrowers had exaggerated their earnings in order to take out larger mortgages. Banks were then forced to introduce tougher affordability checks in order to help reduce high-risk lending and demand that customers prove their earning levels through up to three years of accounts, or stump up a large deposit.
Today, borrowers can no longer use interest-only mortgages as a cheaper alternative to a repayment deal and have now become “mortgage prisoners" – thus presenting a huge opportunity to the secured loan market.
In the last 12 months, secured loan lenders have successfully taken advantage of this gap in the market and competed to offer lower rates and come up innovative products, focusing especially on the self-employed. Go back to 2011 and the cheapest rate a self-employed applicant could hope to achieve was 8.9%; with the next best rate jumping to 10.8%!
Then in 2012 things really started to change. Shawbrook Bank pioneered the industry in terms of lending to the self-employed and reduced its rates to 7.9%. This decision provided a much needed boost to consumers.
Self-employed customers are now able to borrow up to £200,000, whereas 12 months ago they were only allowed to borrow up to £100,000 and the maximum LTV allowed is normally 65%, yet now loans are available up to 90% LTV.
Secured loan lenders will accept a tax return, accountant’s reference or even bank statements as proof of income and with interest rates for self employed customers now starting from just 5.7%, a secured loan can often be the client’s cheaper alternative to raising money and it’s no wonder self-employed loan applications have become popular.
As availability increases other lenders have started to relax criteria for sole traders too. Most recent Nemo Personal Finance, has broken yet more barriers and amended its self- employed criteria earlier by offering the same low rates to its professional self-employed applicants - This means a professionally qualified individual who would previously have qualified for a rate of 10.8% APR, can now get the same rate as those in employment at 5.7%.
I can’t say this enough, a second charge loan is an extremely realistic option to those borrowers who are looking to raise capital but continue to be penalised by their mortgage lender. It has never been more important for brokers to start thinking of the best solution for their clients, and the best solution isn’t always the best mortgage product.
