Lenders must rise to the FCA’s challenge on self-employed mortgages

Being self-employed isn’t easy. There is far more uncertainty involved with working for yourself than being a traditional employee - demand for your services can rise and fall quickly, and have a direct impact on your income. And while there can be more flexibility, for example around working hours or locations, that can easily result in working longer, unsociable hours in order to secure the work. 
 
Opting for self-employment can make life complicated when it comes to arranging a mortgage too, a fact highlighted earlier this year by the regulator, when it proposed  loosening certain rules to boost support. While lenders like Atom bank have built a reputation for supporting self-employed borrowers through flexible criteria, the intervention of the FCA should send a message to all of us in the market. We need to explore the barriers faced by the self-employed, and how we can better help them with their homebuying aspirations.

Recognising the issue

It’s welcome that the regulator has acknowledged that the current rules around mortgage lending can make things difficult for those with varied incomes, such as self-employed workers. 
 
The Financial Conduct Authority (FCA) launched a consultation earlier this year specifically looking at tackling areas where creditworthy borrowers are being prevented from accessing the mortgages they need, and which they are more than capable of repaying. This wasn’t focused just on variable and irregular incomes of course - the regulator has also proposed changes on the rules around things like interest-only and part-and-part mortgages, as well as credit impaired mortgages and retirement interest-only (RIO) mortgages. 
 
But what’s important to recognise is that the regulator expects lenders to deliver a fair deal to all borrowers, irrespective of whether they have the predictability of a consistent salary, or whether they have the income variances that come from self-employment.

Stepping up

It’s one thing for the regulator to loosen the rules around lending to certain borrowers, but progress relies on lenders responding in kind. Lenders cannot simply carry on as before; we all need to explore how we can adapt to the new rules once implemented. 
 
Much will come down to attitude. Different lenders will have their own approach to working with self-employed borrowers, and the level of proof of income required. We know that brokers can be left frustrated by some lenders, feeling they are being made to jump through hoops, or go into what they feel is unnecessary detail. It not only means the process takes much longer, but can lead to heightened stress for the client, at an already testing time. 
 
Others though have built a reputation on being more flexible, moving away from a rigid tickbox approach in order to get a balanced view of the borrower’s actual circumstances and what they can reasonably afford. It’s these lenders who are already often the go-to options for more complicated cases, and who should be best placed to adapt to the new rules, if they do in fact come into force.

Brokers come into their own when cases are more complex

It’s when cases are a little more complex that brokers really demonstrate their worth. If the client has a varied income, or some adverse credit, or even a combination of the two, working with a quality broker is absolutely essential. The best brokers are experts at establishing which lenders are best placed to support specific clients, based on their particular circumstances - there’s far more to the job than just pinpointing a low rate. 
 
When it comes to deals involving self-employed borrowers, that means working out which lenders can consider a case comprehensively and on its own merits, no matter how many income sources are involved, and which are likely to get caught in the weeds of the case. It’s not just about getting a yes, but getting a yes in a timely manner, allowing the borrower to push on with their transaction rather than enduring prolonged sleepless nights.  
 
Understanding precisely how a lender will assess the case is crucial here. It’s not necessarily a question of whether the underwriting process is entirely manual or supported by automation, but rather whether the lender has the processes in place to judge the case fairly.

Meeting the challenge

There are currently more than 4.5 million people working for themselves in the UK, with the latest figures showing an increase on last year. Yet too often these people find it unnecessarily difficult to access the mortgage finance they need. While some lenders have recognised this, and striven to deliver the flexible approach needed to support self-employed borrowers, others have not been quite so understanding.  
 
The FCA’s proposed reforms make clear that lenders need to go further in supporting underserved borrowers, including those who are self-employed. Now is the time for lenders to prove they are listening.