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.

Also, according to consumer watchdog Which?, it might be worth advisers taking stock of what the client's accountant might be telling them.

A handy hint from Which? Mortgage Advisers' factsheet on self-employed mortgages suggests that accountants, in trying to help their clients minimise tax bills, might actually be having a detrimental effect on the client's mortgage suitability situation.

The factsheet says: "The accountant will see it as part of his job to minimise your tax bill using legitimate methods to reduce your taxable income. 

"However, this can count against you when applying for a mortgage. Also, many self-employed people also earn money through the pay-as-you-earn system, which can make your business income seem lower."

What can clients do?

If people are going to raise finance to expand their business, they should be aware that many lenders will impose restrictions and make people go through many more hoops than 10 years ago, according to Mr Phillips.

This is why it is important people are aware of the help an experienced broker can give, especially as brokers who have direct access to the underwriter direct can discuss the various facets of cases before they are placed.

Apart from going to an experienced broker, it is critical to keep meticulous accounts, and build up documentation. Mr Phillips comments: "It is no longer enough just to have a letter from someone's accountant, as it used to be."

Don't give up, is another tip from Mr Smith-Thompson. There may be knock backs from mainstream lenders, but there are firms willing to lend, as long as they get a sufficient rate, he says. 

This is why it is so important to make sure clients are aware of specialist brokers and lenders who can help them in their situation, he comments.

The Brexit effect

The hard Brexit expected over the coming months has so far not caused a direct impact on remortgaging among the self-employed, although there has been a tightening of lending criteria, according to Portafina's Mr Smith-Thompson.

"Over the past six months we have seen a tightening. Whether this is because people are not sure where the housing market might end up in the UK post-Brexit or not I don't know.

"If there is a recession, the self-employed are usually the worst hit, so this is probably why some lenders may be taking a more cautious view." 

Other options

For advisers whose clients are consistently seeing high rates and set up fees, there is the possibility of looking at a second charge mortgage, or taking out a personal loan.

However, with these options, clients have to go through all the underwriting requirements again and this can take time to process - time which some business owners do not have, as they could miss out on the acquisition opportunity, for example.