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Self-employment will grow – will lenders match the appetite?

Hiten Ganatra

July 29, 2021

Hiten Ganatra is managing director of Visionary Finance

If you are self-employed currently, you could be forgiven in thinking that everyone is conspiring against you, as not only have many freelancers and small businesses had the toughest eighteen months imaginable, but then recent reports in the press say that high street banks are refusing mortgages – give us a break, I hear you cry!

In the last few days, it has been reported that furloughed workers and self-employed people who have received government grants during the pandemic have been refused mortgages by some of the UK’s major banks.

The article quoted that two of the UK’s biggest high street banks, NatWest and the Royal Bank of Scotland, are reportedly refusing mortgage applications from people who took the government’s self-employment income support scheme (SEISS) grant.

This is despite the Financial Conduct Authority (FCA) saying that the SEISS grant or support of this kind “should not, of themselves, prevent people from being able to access credit.”

As of May 2021, there are approximately 4.2 million self-employed workers in the UK. In the wake of the COVID-19 pandemic, self-employment has fallen to levels not seen since the middle of 2015. This fall is understandable following the pandemic, but we can only expect numbers to rise again and soon.

In addition, according to a report published by the Institute of Fiscal Studies, a lack of job opportunities will drive a record rise in solo self-employment (sole traders and owner-managers with no employees). They have stated that the level and growth of solo self-employment in the UK are among the highest in OECD countries.

Could we see that due to there being a greater acceptance of remote working it will also shake up labour policy and rationalise going freelance in the first place: work-life balance? I can foresee that after getting a taste of remote working, many workers will opt for solo self-employment over a full-time office-based working model once lockdown measures ease.

So why is it so difficult for the self-employed to obtain a mortgage? Undoubtedly, the pandemic will have caused many people difficulties and a fair number will have experienced fluctuating revenue, especially during the first lockdown period.

This causes difficulties for lenders, as upward trends are fine, but assessing the viability of the borrower during a blip period is not a strength for many, especially those lenders on the high street.

Thankfully, the computer says no is not an approach used by all and we are seeing more and more ‘specialist’ lenders develop products and lending policies designed to serve the self-employed, as rightly they have identified an opportunity and a market underserved.

However, I feel that more lenders, not just specialists, need to embrace and develop products and lending criteria that enable more to obtain a mortgage. A change in employment patterns is coming and it will last, so lenders need to adapt and embrace these changes to ensure that homeownership can be the preserve of the many rather than the few.


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