Self-employed borrowers 'penalised' by lenders

Self-employed borrowers 'penalised' by lenders
Credit: Jason Alden/Bloomberg

Self-employed borrowers are being "penalised" as lenders have stepped up their underwriting requirements for this higher risk group.

Greg Cunnington, director of lender relationships and new homes at Alexander Hall, said underwriting requirements for self-employed applicants have become more difficult and a lengthier process. 

He said: “[Lenders] will typically now manually assess these applications. This sees lenders typically wanting more documentation requirements, such as business bank statements, and a full understanding of their current financial position in light of the pandemic and the economic problems this has caused many businesses.”

Adam Wells, director at Lloyd Wells Mortgages, agreed. He said: "Although some self-employed customers are doing well, they are being penalised due to the extra time it takes to underwrite their applications and the extra risk that they are seen to be.

"Hopefully, as the pandemic starts to subside the lenders will once again be able to provide the same level of lending to the self-employed, as they do to their employed borrowers."

The comments came after research from Mortgage Broker Tools (MBT) found the self-employed were finding it harder to borrow their requested amount than employed customers.

Data from MBT showed while 71 per cent of self-employed mortgage applicants could find a lender last month, this was well below the 86 per cent of first time buyers and remortgagers. For home movers, the share was 82 per cent.

MBT’s data also showed self-employed mortgage applicants were offered the lowest average maximum loan in comparison, at £221,400 last month.

First-time buyers were offered a maximum of £230,555 last month, while remortgage customers and homemovers were offered £247,800 and £285,860 respectively.

Rachel McKay, director at DST Financial Services, said there was a general confirmation that a lender requires about whether a self-employed applicant’s business has been affected by the pandemic.

She said: “If you have taken a bounce back loan or similar, lenders will interpret that as a ‘yes’ that your business has been adversely affected, even though you may be repaying the loan, and may not lend.”

Tanya Toumadj, chief executive officer at Mortgage Broker Tools, said: “The latest MBT affordability gap data confirms that it is more difficult for self-employed clients to achieve their requested loan size, but that it is still possible, with the right research.

“There is a clear warning for brokers within the data. On the cases where there were no options available based on affordability, the difference between the loan requested and maximum loan offered was 25 per cent and this is the highest level we have known in any category since records began.”

What do you think about the issues raised by this story? Email us on to let us know.