finance

How taking a Covid grant could ruin your chances of getting a mortgage


LENDERS are refusing to hand out mortgages to self-employed workers who accepted Government support during the pandemic.

Borrowers who took one of the Self-Employed Income Support Scheme (SEISS) grants are struggling to pass strict affordability criteria set out by banks and building societies.

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Self-employed borrowers are finding it harder to get a mortgage if they've taken a SEISS grant

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Self-employed borrowers are finding it harder to get a mortgage if they’ve taken a SEISS grantCredit: Getty

Some lenders have tightened the rules around lending to those who work for themselves, limiting the amount they can borrow or refusing them altogether.

Now, mortgage brokers are demanding more clarity and fairness from banks and building societies over their treatment of the self-employed. 

Meanwhile a trade body representing self-employed workers is calling on the Government to step in and end the discrimination.

Banks and building societies are taking widely different views when it comes to their treatment of business owners or freelancers who took one or all of the Self-Employed Income Support Scheme (SEISS) grants. 

How do I apply for the self-employment grant?

EXACTLY how self-employed workers can claim the next coronavirus grant is yet to be confirmed.

For the previous grant, you made your claim via the Gov.uk website once they opened for applications.

Self-employed workers needed the following info to claim:

Some lenders are upfront about how they view those who took grants, but others make a decision on a case-by-case basis making it a minefield for borrowers who want to know if they are eligible to buy a home.

NatWest has refused to lend to anyone who took a SEISS grant since November last year.

Meanwhile, HSBC says borrowers who have taken grants will be accepted but none of the grant income can be used to support the mortgage application. 

That means those who were forced to replace their income with grants during the national lockdowns are likely to fail the bank’s affordability checks.

Four SEISS grants have so far been released. A fifth grant will be open for claims towards the end of July

Under the rules of the fourth grant you can claim up to 80% of your average profits up to £2,500 a month.

This mirrors the rules of the furlough scheme which pays employed workers 80% of their monthly salary.

Banks are nervous

To be eligible for a SEISS grant you must declare that your trading has been damaged by the coronavirus pandemic and your profits have been reduced.

This makes banks more nervous lending to the self-employed than workers on furlough, despite the financial benefit of the schemes being the same.

Almost 60% of self-employed borrowers said they felt penalised by lenders because they worked for themselves, according to a survey carried out by the Association of Independent Professionals and the Self-employed (IPSE).

And 70% who did manage to get a mortgage said some lenders would not consider them at all because they were self-employed. 

Andy Chamberlain, director of policy at IPSE, said: “The self-employed sector has been financially devastated by the pandemic: in many cases because of the gaps in support for them.

“That some freelancers are being penalised precisely because they got support adds insult to injury.

“It is more difficult for the self-employed to get mortgages at the best of times; the discriminatory approach of certain lenders now seems to be making it nearly impossible for many freelancers who received government support.

“We urge the government to step in and ensure they are not unfairly penalised for receiving SEISS payments.”

What are lenders saying?

Not all lenders disregard the grant income but some lower the amount they are prepared to lend.

Barclays said it does not penalise borrowers who took a SEISS grant, and the income is taken into account when assessing how much the bank will lend. 

However, mortgage broker Simon Butler, of CMME, specialists in self-employed mortgages, says if a Barclays underwriter believes a business has been impacted by the pandemic, they will only use 80% of income made in 2020. 

How to boost your chances of getting accepted

IF you’re self-employed and benefited from a SEISS grant, your chances of getting accepted for a mortgage are lower than someone on PAYE.

Here’s some advice from the experts at IPSE on what you can do to boost your chances of getting accepted for a mortgage.

Lenders often view the self-employed less favourably because they see them as a bigger risk, so try and save the biggest deposit possible, ideally 25%, to have access to the widest range of deals.  

Have your paperwork and accounts in good order before you apply. Be prepared with evidence that you’ll have a stable income over the coming months and years.

Get advice from an expert, ideally from a specialist in self-employed mortgages, before making your application. They can help you complete your application depending on your circumstances to give you the best chance of success.

Understand the lending landscape before you apply. Some lenders won’t even consider business owners and freelancers so either do your research before approaching the bank or ask a broker to do it for you.

Clydesdale will reduce the amount of the mortgage it will lend by the value of the grants taken.

Meanwhile Nationwide and Halifax say where borrowers have taken SEISS grants, each case is looked at individually.

Nationwide, however, has reduced the amount of earnings a contractor can use to support their application, even if they have not taken any government support. 

Santander is letting business owners disregard their 2020/2021 tax year which means it will ignore any use of government grants.

Instead they can use their 2019/20 earnings. But the bank insists on deposit of 25%. Businesses must be open and trading for three months before borrowers can apply for a mortgage.

Metro Bank will allow SEISS grant income to be used to support an application up to 80% LTV.

Families who want to borrow more than 80% LTV cannot have received any SEISS grants in the last six months.

The bank will ask to see the last six months’ business bank statements.

NatWest said its blanket ban on applications from SEISS borrowers is under review but refuses to say when changes will be made.

Mr Butler said: “We need clarity from lenders on when borrowers can apply for a mortgage after their business has reopened.

“And once they have returned to trading on a consistent basis it would be supportive if lenders took a less aggressive approach to restricting lending, especially if they can provide pre-covid evidence to demonstrate a thriving business under normal circumstances.”

He added: “It would also be fairer for lenders to consider that the use of grants was, for most borrowers, a temporary measure to support their family and to pay their bills during a unexpected and highly disruptive period.”

However, David Hollingworth, director at L&C Mortgages, said mortgage lenders must act cautiously to protect borrowers.

“Lenders need to be confident that the mortgage they are granting is going to be affordable and sustainable in the future,” he added.

“Assessing a self-employed borrower’s income in turbulent times can make that all the more difficult. The more prolonged the use of grants, the less likely it is lenders will take the income into account.”

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