Self-employed people tend to face more of an uphill challenge when applying for mortgages.
This is due to the complex nature of how their income is generally structured and reported compared to the predictability of PAYE employed applications. The pandemic seemed to amplify these differences and made the mortgage process even more difficult for self-employed business owners, through no fault of their own.
Our approach
Unsurprisingly, at Skipton a common self-employed query in Q3 2022 was, how do we assess an applicant’s income where their business was affected by the pandemic? There's no doubt this will remain to be the case for at least the next 12 months. The default underwriting process at Skipton for self-employed applicants is either an average of the last 2 years income, if income has increased year on year, or if income has decreased in the latest year, we use the figure for that year. We take a common-sense approach to lending, and that’s why in addition to our default underwriting process, in some cases we may be able to look at a 3-year average. This approach may be taken if both the years pre- and post-pandemic are reflective of normal trading levels. Your BDM will be happy to talk through any cases that fall into this category before submitting them.
Maximum age for self-employed applicants
A longer mortgage term is becoming more desirable for many applicants as affordability is being squeezed. Some borrowers may want to take out a longer term to fix their monthly payments to help them manage the pressure being felt by the cost-of-living crisis. Skipton will take applicants to age 70 using their self-employed income. To take a term post age 70, we can consider going to age 75 using either pension income evidence / projection, or we may consider going to age 75 using their self-employed income. To use the latter, the applicant would need to have an accountant to provide us with a letter or note on our accountant’s certificate confirming the income from the business is sustainable up to age 75 and that the applicant doesn’t have an active role in the business to draw this income.
Case packaging
As we are in November, you may think we will be asking for up to date tax documents, however, Skipton may have a solution for this:
Sole traders & Partnerships
Applicants with an accountant, we can accept a completed accountant’s certificate or 2 years accounts along with 3 months business, and 3 months personal bank statements. If the figures for the trading year are dated within the past 18 months, we do not ask for tax documents as part of our standard packaging. If they don’t have an accountant, we would still need to see tax documents that are less than 18 months old.
Limited Company Directors
We need an accountant’s certificate or 2 years accounts along with 3 months business and personal bank statements. If the figures for the trading year are dated within the past 18 months, we do not ask for tax documents as part of our standard packaging.
Limited Liability Partnerships (LLP)
If the applicant is a partner with a large regional or national professional partnership, we may accept an employment reference from a senior partner, finance director or practice accountant, showing the applicant’s share of profit. If the applicant is unable to obtain 3 months business bank statements (e.g., the other partners are unwilling to release these) we may accept three months personal bank statements evidencing income from the LLP.
When taking all the above into account, it’s clear to see that Skipton aim to be flexible when dealing with your self-employed clients. It also highlights the importance of having a close relationship with your BDM, so talk to us and see if we could help you and your clients.