Thousands of self-employed workers face being locked out of the mortgage market by ‘draconian’ lending restrictions which could force them to raise a deposit of almost £100,000.
Major banks including Santander and NatWest have cracked down on freelancers with lumpy income as part of a bid to limit their exposure to risk – but campaigners warn the new rules mean many will be unable to buy a home.
Santander has blocked mortgage applications from self-employed people unless they have a deposit of at least 40pc. With the average house price standing at £245,000 according to the Office for National Statistics, this means self-employed workers must have a £98,000 deposit.
Aaron Strutt of mortgage broker Trinity Financial said that NatWest is routinely declining applications from self-employed customers who have claimed money from Government support schemes.
Lenders are also examining bank statements and company accounts in much greater detail than before, Mr Strutt said. He said that customers are commonly being asked for two years’ full accounts and six months’ bank statements, both personal and business. Previously one year of accounts and three months’ bank records were permissible.
In some cases, Mr Strutt said his clients had been asked to justify individual expenses and outgoings.
Although the mortgage market has slowly opened up in recent months, banks are still wary of a house price crash when the stamp duty holiday expires at the end of March. Repeated lockdowns have also placed many small businesses in jeopardy, sparking fears about their owners’ finances.
However Jonathan Harris of Forensic Property Finance, another mortgage broker, said: “Some lenders are indiscriminately bashing the self-employed by applying draconian criteria for no other reason than an applicant works for themselves.
“This is frustrating as it doesn’t make sense that the self-employed are considered a greater risk than the employed, given significant numbers of employed workers have been furloughed and face the prospect of unemployment when the scheme comes to an end.”
Telegraph Money reported last year that banks were penalising self-employed workers and company owners. In some cases, freelancers were blocked from taking out personal mortgages if their company had furloughed employees or used other Government support schemes.
Santander said it is dealing with a backlog of self-employed customers and that it currently takes 40 working days to make a mortgage offer to these applicants.
Graham Sellar, of Santander, said existing customers who are self-employed could still access loans with a 15pc deposit. He said: “Due to the additional paperwork involved, applications from self-employed customers can take longer to review and our changes will ensure we can progress existing applications as quickly as possible.”
A NatWest spokesman said it does not currently consider Government grants as income, but promised to review the policy if scheme rules change in future.