Specialist Lending - February 2017 

Remortgaging for the self-employed

  • To understand why there can be issues with remortgaging for self-employed clients.
  • To work out what lenders will need to meet your client's borrowing request.
  • To learn ways to help clients overcome various challenges when remortgaging.
CPD
30min
Remortgaging for the self-employed

Self-employed people in the UK are a significant proportion of the nation's taxpaying community. 

According to data published in June last year (2016) by the Office for National Statistics, the numbers of people who are registered as self-employed is on the rise. 

It claimed the level of self-employment in the UK increased from 3.8m in 2008 to 4.6m in 2015 - and is part of a growing trend (see graph below).

Setting this in context, there were 31.76m people in employed work as at October 2016; 23.20m of whom are working full time and 8.56m working part-time.

Given the rising numbers of self-employed people in the UK - equating to more than 10 per cent of the employed population - it would be reasonable to expect a suite of financial products specifically for them and lenders well-versed in setting up and arranging loans, mortgages and remortgages.

Graph: Rising trend in self-employed (ONS)

But the latter point - remortgaging, particularly to unlock cash to reinvest in the business or meet a one-off business expense - has become much harder, brokers have claimed.

Over recent months, the larger high-street lenders have seemingly retreated from offering remortgages on reasonable rates to self-employed people, leaving the more bespoke lenders to step into the breach.

This is the view of Jamie Smith-Thompson, managing director of Portafina, an advisory firm which specialises in advising people who are self-employed or contractors. 

He says: "Remortgaging to unlock cash for my self-employed clients has become steadily more difficult. The rates that some are offering are simply unbelievably high.

"For example, we are dealing with one specific clients looking to release some money from the mortgage to pay a one-off tax bill.

"Ironically, the reason he has this tax bill is because he has been making a profit year in, year out, so given his success, you would think a lender would take this into consideration and provide decent remortgaging terms. 

"This has been a nightmare, however. I've been in financial services since 1999 and even during the Credit Crisis of 2008, I have not seen things as tough for self-employed people.

"Criteria now is the most stringent that I have ever seen - no doubt a hangover from the Credit Crisis and the various financial regulations brought in - which have made lenders scared about lending to anyone who could be seen as a risk."

He said when he had got hold of a high-street lender willing to quote on a remortgage for his client (who has carried out similar remortgaging in the past and never defaulted), the lender offered an 8 per cent variable rate and a set up fee between £8,000 and £9,000.

CPD
30min
  1. How does Mr Smith-Thompson describe lending rates on remortgaging for self-employed clients?

  2. What is the most important factor, according to Mr Haresnape?

  3. How many years of accounts will most lenders want, according to Mr Phillips?

  4. According to Which?, what are accountants doing that they think will help their client, but which could work against them?

  5. Apart from going to a broker, what does Mr Phillips think it is critical to do?

  6. What has Mr Smith-Thompson seen over the past six months, which could be a result of Brexit although it is too early to say?

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