Despite being told by the Financial Conduct Authority (FCA) and the government that using COVID-19 support schemes would not affect people’s credit ratings, many contractors and self-employed workers are being refused or penalised when looking to secure mortgages.
Some high street banks are even refusing to consider applicants if they have taken out a bounce-back loan or received money from the Self-employment Income Support Scheme (SEISS).
Last week, Santander became the latest mortgage lender to impose harsh restrictions on people working for themselves by excluding them from their lower-deposit mortgage deals.
It said it would only provide mortgages that cover up to 60 per cent of the property value, meaning first-time buyers who are self-employed would be required to put down a 40 per cent deposit.
In comparison, employees looking to get a mortgage through Santander would only need to put down a 15 per cent deposit. The bank said the restrictions would only apply to new customers and have come into place to speed up existing applications.
Graham Sellar, head of business development at Santander, told This is Money: “We regularly review our products to manage the volume of applications we receive.
“Due to the additional paperwork involved, applications from self-employed customers can take longer to review and our recent changes will ensure we can progress existing applications as quickly as possible.”
Santander is not the only bank penalising self-employed borrowers. According to This is Money, TSB has limited new customers who work for themselves to a mortgage of 75 per cent of the property value, while Halifax has placed a cap on lending.
Metro Bank is said to be asking for additional paperwork, including more bank statements from the self-employed. Meanwhile, only employees can apply for Nationwide’s 90 per cent mortgage offer.
According to HSBC, self-employed people in the UK could be facing tighter lending criteria and affordability rules well into 2022.
Professional bodies and industry experts have criticised mortgage lenders for not honouring the government promise, saying banks are cutting off the self-employed from accessing a contractor mortgage simply because their applications are more complex.
Simon Butler, head of mortgages for CMME told Contractor Weekly: “What we are witnessing within the contractor market is the disparity between the messaging that loans and grants will not affect one’s credit rating and the impact that this very action, that is designed as a support, has on self-employed professionals disproportionately.
“Increasingly, in comparison to PAYE employees, contractors throughout the pandemic have been at an arguable disadvantage because of the ‘risk’ associated with lending when accounting for contracted work in the current economy.”
Butler says that one of the reasons high street lenders see contractors as higher risk is because of a “lack of understanding at the way these professionals operate.”
He added: “A self-employed professional’s mortgage application is normally handled within the same time frame as a PAYE applicant. However, with the current strain on lenders and high street brokers due to increased application volumes under the stamp duty holiday, some lenders have introduced harsher restrictions on contractors and the self-employed.
“To maximise opportunities for success in the current mortgage market, contractors should consider providing as much documentation of their income as possible. One year of contracts and an up-to-date CV may be enough for some brokers, however, providing evidence of consistency cannot harm your application.”