Could Covid-19 interfere with applying for your mortgage?
Are you self-employed and have had to seek financial help from the government during Covid-19? You could struggle to get a mortgage as some high-street banks are declining mortgage applications to some self-employed people who have received government grants during the pandemic.
Sectors such as entertainment, hospitality and travel seem to have struggled the most with getting their mortgage application approved. Additionally, many mortgage lenders have stated that they will not accept mortgage applications from anyone on furlough as they deem this to be a high-risk factor.
How much is this affecting the self-employed?
Some first-time buyers with a 10% deposit have found that even though they now have a full-time permanent job, lenders are still refusing their applications. Lenders have also told the BBC that ‘we’re not accepting applications from customers who have applied for a SEISS grant on or after 14 July 2020’ as this is part of the banks’ affordability criteria.
As it stands, lenders will need to see good evidence that your business has recovered from the pandemic via a good turnover. Along with this, they will request to see the last two years of accounts to work out how much you earned during that time. Sadly, this means that the pandemic could affect self-employed people and their mortgage applications up until 2023.
If you’re self-employed you may be asked to come up with a much larger deposit for your mortgage to be in with a chance of being accepted. Banks are requesting deposits from 20-25%, double the usual deposit amount.
It’s also important to know that mortgage lenders have thoroughly stated that furloughed income is not included as part of an affordability assessment, so you will have to ensure your furloughed funds do not contribute towards your ability to pay frequent mortgage repayments.
Cracking down on lenders
Most recently there has been a call for lenders to assess how businesses were performing pre-pandemic, to make it much fairer on those who had no other choice but to close their business during Covid-19. Due to lenders not offering mortgages to those who have had to receive financial support from the government, millions of people have expressed that they were not informed of the full long-term impacts of this.
Due to the overwhelming disapproval from customers, it has been recommended that the financial regulator looks into lenders who are penalising those that have had to seek financial help during the pandemic and for them to take action against this.
With over 4.2 million self-employed workers in the United Kingdom, almost 60% of self-employed workers claimed they felt penalised by lenders purely because they worked for themselves. Freelance workers especially felt that they wouldn’t be considered by some lenders due to being self-employed.
If you’re self-employed and need advice on applying for a mortgage, Twin Pine are here to help. Contact us today.