The COVID-19 pandemic has left a significant mark on almost every industry worldwide, and the mortgage industry is no exception. As the nation navigated through the economic crisis, the UK government, bank lenders, and businesses had to rapidly adapt their operations. An essential part of this evolution was the changes to mortgage lending criteria, particularly for self-employed individuals.
The Impact of Coronavirus on the Mortgage Market
The coronavirus pandemic disrupted the mortgage market significantly. As the virus swept across the globe, a financial crisis was inevitable. In March 2020, the UK government implemented several support schemes for businesses and individuals, including loans, mortgage payment holidays, and income support initiatives.
For self-employed people, these measures could provide crucial financial relief. However, the sudden fall in income and increased reliance on government support brought about new challenges, particularly around mortgage eligibility.
In the wake of the COVID-19 crisis, traditional income verification methods became less reliable. This led to adjustments in the mortgage lending criteria, particularly for the self-employed, who often have more irregular income patterns compared to those in permanent employment.
Latest Adjustments in Mortgage Lending Criteria
These changes in the economy and the mortgage market led to several significant adjustments in the mortgage lending criteria for self-employed individuals.
Firstly, lenders started to take a more cautious approach towards self-employed borrowers. While previously a mortgage application might have been assessed based on the income of the last two or three years, lenders began to focus more on the recent income – particularly the period since April 2020, when the impact of the pandemic began to be felt in earnest.
To help lenders assess the risk of lending to self-employed individuals, some banks introduced additional checks. For example, some asked for more recent bank statements or required evidence of ongoing contracts or work. This change represented a significant shift away from traditional assessment methods.
The Role of Government Support Schemes
Government support schemes, such as the Self-Employment Income Support Scheme (SEISS), played a significant role in the income of many self-employed individuals during the pandemic. However, these schemes also complicated the mortgage application process.
While the SEISS offered crucial support for self-employed individuals facing reduced income, it also raised questions over how this income should be treated when applying for a mortgage. Some lenders chose to exclude SEISS payments from their income calculations, while others included it but applied additional checks.
The Future of Mortgage Lending for Self-Employed Individuals
The impact of the coronavirus pandemic and the resulting economic crisis has prompted a reconsideration of how mortgage lenders assess self-employed borrowers.
As we move beyond the peak of the crisis and the economy begins to recover, mortgage lenders are likely to continue adjusting their criteria. This includes the possibility of further revisions to how government support payments are treated in assessing income, and how recent income changes are taken into account.
In the longer term, it is possible that lenders may move towards more flexible criteria for self-employed applicants, recognising the changing nature of work and the growth of the gig economy. However, it is clear that the financial insecurity brought about by the pandemic has led to a more cautious approach in the meantime.
How Self-Employed Individuals Can Navigate These Changes
Navigating these changes as a self-employed individual can be challenging. To increase the chances of mortgage approval, it is important to keep detailed and up-to-date records of income, including any government support received.
Reaching out to a mortgage advisor or broker can also be helpful, as they can provide advice tailored to individual circumstances and help navigate the complex mortgage market.
In these uncertain times, it is crucial to understand the changes in the mortgage landscape and adapt accordingly. The COVID-19 pandemic has undoubtedly made the mortgage process more challenging for self-employed individuals, but with careful planning and the right support, it is still possible to secure a mortgage and achieve homeownership.
The Bank of England’s Perspective on Lending
The Bank of England, with its mandate for financial stability, has been closely monitoring the changes in mortgage criteria and the broader implications of the financial crisis brought about by the COVID-19 pandemic. The central bank has had to make some critical decisions to ensure the stability of the banking sector and the broader economy.
The coronavirus pandemic has affected all sectors of the economy, and the Bank of England has acknowledged the specific challenges faced by self-employed individuals. The Bank has recognised the uncertainty surrounding income for the self-employed, particularly in light of government support schemes such as the Self-Employment Income Support Scheme (SEISS) and the Job Retention Scheme.
In the face of the COVID crisis, the Bank has also had to consider the impact on the maximum Loan to Value (LTV) ratios offered by lenders. Many lenders reduced their maximum LTVs in response to increased risk, impacting the ability of self-employed individuals to secure a mortgage.
While the Bank has urged lenders to support small businesses and self-employed individuals during these testing times, it has also stressed the importance of maintaining financial stability. This delicate balance has resulted in a cautious approach to lending, particularly towards those with irregular income patterns.
Local Authorities’ Role in Supporting Self-Employed Home Buyers
In response to the global financial crisis triggered by the COVID pandemic, local authorities have also stepped in to support self-employed individuals. Like the Bank of England and other lending institutions, they are closely monitoring the situation and implementing measures to ensure financial stability and economic recovery.
Local authorities have recognised the crucial role of self-employed individuals and small businesses in their local economies. Therefore, in addition to national schemes like SEISS and Job Retention, local authorities have introduced their own initiatives. These include loan schemes aimed at supporting self-employed individuals facing financial hardship due to coronavirus-induced social distancing measures and lockdowns.
Moreover, local authorities have been working in tandem with banks to understand how they can support self-employed individuals in navigating the mortgage application process amidst the changing lending criteria.
Conclusion: The Changing Landscape of Mortgage Lending Post-COVID
The COVID-19 pandemic has brought about many changes, and the mortgage lending criteria for self-employed individuals is one of the areas that have experienced significant transformation.
The financial crisis triggered by the pandemic has led to a more cautious approach by lenders, with recent income and government support schemes becoming key considerations in the approval process. In addition, the Bank of England and local authorities have been actively involved in ensuring financial stability while providing support to those affected by the crisis.
This changing landscape presents challenges for self-employed individuals seeking a mortgage. However, with careful planning, keeping accurate income records, and seeking professional advice, it is possible to navigate these changes successfully.
As we move forward, it will be interesting to observe how the mortgage lending criteria will evolve further. While the current focus is on managing the impact of the coronavirus COVID-19, the shift towards more flexible assessment criteria in the longer term is a likely possibility. Until then, resilience and adaptability will be key for self-employed individuals aspiring to realise their homeownership dreams in these unprecedented times.
