Changing tax year means lenders can no longer put off self-employed borrowers
Given the way that many lenders have approached the provision of mortgage finance to self-employed borrowers over the last year, surely we can expect a big change with the new tax year, can’t we?
Once the new tax year began, every single self-employed person was able to prove exactly what they earned over the last 12-month period.
This means that lenders will be presented with irrefutable proof of those earnings and will be able to use their traditional measures of judging a self-employed person’s mortgage affordability to genuinely ascertain how much they will lend, and the borrower’s ability to pay.
As a result, they will no longer be able to suggest that last year’s lockdown period(s) represented the true nature of the self-employed borrower’s income for the year, because they’ll have the yearly income right there in black and white.
And they will not be able to put off any decision because they need to see exactly what the full 2020-21 tax year figures for that potential borrower are, because they’ll have that information.
Lenders will be able to take an average of the last two years’ income, or they can just use this the past year’s accounts.
Because after all – using the argument they’ve pushed time and time again recently – last year is likely to have been the worst of the two because of the pandemic, so they’ll have exactly what they need to make the lending decision.
A change of tone from lenders
It’s at this point that we're hoping this will provide a shift in tone from certain lenders.
After a year in which a large number of lenders have actively discouraged self-employed borrowers applying for mortgages with them, we anticipate there will be a major marketing and advertising push to encourage these borrowers to apply.
Lenders will boost their income multiples for self-employed borrowers, will move their criteria and pricing more in their favour, will offer them the same access to higher loan to value (LTV) products as they have offered their employed borrower counterparts over the last six months.
Because now self-employed borrowers will more than likely be seen as lower-risk than employed borrowers.
After all, lenders will have total transparency on the self-employed borrower’s finances. Whereas in the employed space there will still be uncertainty about their employment prospects and potentially around their incomes in the future, and their ability to keep paying their mortgage.
Will things really change?
In essence, the tables should really turn for self-employed borrowers.
Lenders’ message to self-employed borrowers will now no doubt be positive and clear – we want your business.