Self-employed borrowers frozen out by banks since lockdown get some hope as small building society offers a new ‘bounce back’ mortgage
- Self-employed will have been hard pressed to find a mortgage so far this year
- Banks have limited who they lend to as worries over the economy loom
- New deal could help by letting those affected pay only the interest for one year
Self-employed workers looking for a mortgage will have been hard pressed to find a deal this year but may now have hope with a new deal from a small building society.
While big banks have turned their back on them, Beverley Building Society has launched a deal specifically designed for self-employed borrowers affected by the financial impact of the virus.
The self-employed have suffered a mortgage squeeze in recent months after banks and major building societies pulled the drawbridge up on borrowers they saw as more risky following the coronavirus outbreak.
The deal purports to help self-employed workers whose firms have been hit by coronavirus
These lenders have restricted lending amid concerns on house prices and as they continue to struggle to keep up with processing mortgage payment holiday applications due to lockdown restrictions.
Self-employed borrowers, who already struggled to secure loans before the outbreak, have been among those worst hit.
Unusually, Beverley’s deal offers borrowers a 12-month interest-only period before switching to a full capital repayment mortgage.
During this first year the borrower will only pay the interest on the mortgage, meaning that they won’t actually be paying any of the actual loan off.
This does mean however that monthly repayments will be substantially cheaper in the first year of the mortgage.
For example, paying just the interest at 3.49 per cent on a £100,000 loan taken over 25 years would result in monthly repayments of £291, compared to the £500 a borrower would shell out monthly on a standard capital repayment mortgage.
This could be useful to a borrower whose business has been temporarily affected by coronavirus, but expects it to return to normal within the next 12 months.
There are two fixed rate terms on offer, two years and three years. The interest only part of the mortgage is included in this – so for example if a borrower takes a two year fix, one year will be interest only on the fixed rate and one year repayment, before switching to the lender’s standard variable rate or remortgaging to another deal.
Who can apply?
Beverley Building Society says it will judge the borrower’s ability to pay back the loan based on one year’s accounts.
This means that only those who have been self-employed for at least 12 months will qualify.
All trades and professions within England and Wales will be considered, and the lender says that longer-term trading track record, industry, professional qualifications, experience and ‘future prospects’ will be taken into account when deciding whether to offer a loan.
The building society says that people whose businesses have been temporarily impacted by the pandemic are welcome to apply.
However, as mentioned above, the lender will be looking closely at the future prospects of the firm before lending.
Loans are available for those with a deposit worth 25 per cent of the property’s value – though the lender says it will ‘consider’ 20 per cent deposits for established businesses.
Is it any good?
Unusually, there is no set interest rate for this deal, with the rate being set according to each borrower’s circumstances.
The society says it offers a range of variable and fixed rate deals ranging from 3.49 per cent at the highest, down to 1.52 per cent.
The self-employed have suffered a mortgage squeeze in recent months since lockdown began
A spokesperson for the group told This is Money: ‘The rate ultimately offered depends on each applicant’s individual circumstances and factors such as how new or established their business is, their trading track record and the extent to which they have been affected by the pandemic.’
David Hollingworth of broker L&C Mortgages
It’s likely that the riskier the lender thinks you are to lend to, the higher the rate will be.
However even the lowest rate advertised of 1.52 per cent on this deal isn’t particularly cheap.
The average two-year fixed rate at 75 per cent loan-to-value loan-to-value today is 1.92 per cent according to financial experts Moneyfacts, but there are much cheaper options out there – the lowest being from Leeds Building Society at just 1.14 per cent.
And the higher rate of 3.49 per cent is very expensive for a 75 per cent loan-to-value loan.
On a £100,000 loan over 25 years this would spell monthly repayments of £500, compared to £420 on the industry average 1.92 per cent.
However, for those struggling financially at the moment, there may be few other options available besides waiting for lenders to ease some of the restrictions they’ve introduced since lockdown.
Speaking to an independent financial adviser can help figure out what the best solution is for you.
David Hollingworth from broker L&C said: ‘Lenders are still offering deals for the self-employed but may be seeking more surety around the impact of coronavirus on business.
‘Beverley’s initiative is a good reminder that the mortgage market is made up of a broad range of lender types and those who may find their circumstances don’t fit with one lender shouldn’t give up on shopping around.’