Business owners have to be prepared to deal with all kinds of challenges. One of them is the ability to get approved for a mortgage. Unfortunately, this challenge appears to be getting even more difficult thanks to the combined impact of COVID19 and Brexit.
The self-employed and the mortgage market
Since 2014, lenders have been legally obliged to scrutinize a potential borrower’s ability to repay a mortgage. If they are shown to have failed in this obligation, then they can lend up in all kinds of trouble with the regulators.
On the one hand, this approach may be what is needed to prevent a repeat of 2008. On the other hand, it severely limits lenders’ ability to exercise human judgement. It also, arguably, encourages them to err on the side of caution. Quite bluntly, mortgage lenders may see the inconvenience of turning down a customer as being preferable to risking sanctions from the regulator.
This is bad news for anyone in non-standard work situations, including the self-employed (both sole traders and business owners). Employees on zero-hours contracts and other forms of (potentially) variable income may also find themselves struggling to get approved by a mortgage. What’s more, recent events have made that challenge even greater.
COVID19 and the mortgage market
Lockdown 1.0 forced the housing market to a skidding halt. Ever since then, the UK has been in various states of COVID19 response. These have ranged from mild restrictions to complete lockdowns.
What’s more, over time, the restrictions have become even more granularized. This has meant that the economic impact of COVID19 has varied from place to place depending on the severity of the restrictions. To make matters worse, the restrictions have changed frequently, often at fairly to very short notice.
This has forced mortgage lenders to keep trying to figure out a response to an ever-changing situation. As if this wasn’t hard enough, mortgage lenders have also had to work out what they need to do to keep their own operations running. This not only meant keeping their staff safe but also dealing with borrowers experiencing financial difficulties due to COVID19.
They then had to deal with the impact of the government’s Stamp Duty holiday. This turbocharged the housing market and hence led to a deluge of mortgage applications. Sadly, however, data from mortgage broker platform Haysto indicates that business owners, directors of limited companies and sole traders were at high risk of rejection because of their jobs.
Brexit and the mortgage market
The UK’s final exit from the EU has been a work in progress for some time now. In fact, even though the UK has now officially left the block, there’s a strong case for arguing that it still is. There has been widespread media coverage of the challenges involved in transporting goods between the UK and the EU and the UK and NI.
To be fair, unscrambling the UK’s long relationship was a massively complex task. Arguably, it was almost inevitable that the post-withdrawal period would highlight the shortcomings of any agreement. It’s also reasonable to point out that at least some of these issues might have been dealt with earlier if the UK government hadn’t been dealing with the impact of COVID19.
None of this, however, is likely to be of any immediate comfort to business owners trying to find a post-Brexit “new normal”. What’s more, it’s unlikely to help their chances of getting financing of any sort. Quite simply, lenders may be sympathetic to the plight of business owners but they also need to be pragmatic about the chances of getting their money back.
The way forward
Hopefully, vaccines will soon deal with COVID19 and, also hopefully, the issues with Brexit will be resolved sooner rather than later. Once business owners can get time to breathe and look at the future, they can start to focus on making themselves attractive prospects as borrowers.
Your property may be repossessed if you do not keep up repayments on your mortgage.
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