Santander joins mortgage lenders turning off the tap for self-employed with new 40% deposit rule

Santander has become the latest lender to impose harsher restrictions on self-employed borrowers, excluding them from its lower-deposit mortgage deals. 

The bank has said that new self-employed customers will only be offered mortgages to cover a maximum of 60 per cent of a property’s value.

That means self-employed first-time buyers and most home movers will require a 40 per cent deposit in order to qualify for a Santander mortgage.

In contrast, salaried employees looking to purchase a property through Santander can do so with a deposit of 15 per cent.

There is good news for Santander’s existing self-employed customer base, however.

Homeowners who are already with the bank and are looking to remortgage will remain eligible for all its available deals – whether they are self-employed or not. 

Santander’s new restrictions have attracted criticism from parts of the mortgage industry.

‘The trouble with this restrictive policy implemented by Santander is that it is a blunt instrument with little logic or thought,’ said Jonathan Harris, managing director of mortgage broker Forensic Property Finance. 

‘It doesn’t make sense that the self-employed are considered a greater risk than the employed.

‘Many employed workers are employees of small to medium-sized businesses, run by self-employed individuals.

‘If the self-employed are a greater risk, then what is the logical fate of those employed by them?’

How are other lenders treating the self-employed?

Santander has joined a host of other lenders imposing more stringent requirements on borrowers who work for themselves.

There are more than five million self-employed workers in the UK, and the majority now face tighter lending criteria and affordability rules which, according to HSBC, could remain in place well into 2022.

In many cases, self-employed mortgage applicants have been asked for bigger deposits and additional paperwork. Some lenders have lowered the amount they can borrow, while others have subjected them to longer waiting times and more frequent and rigorous questioning. 

Last week, TSB limited new self-employed borrowers to a mortgages with a maximum loan-to-value of 75 per cent, whilst Halifax placed limits on how much the self-employed could borrow.

Metro Bank now requires more bank statements if you’re self-employed, and Nationwide is limiting its 90 per cent mortgage products to salaried employees only.

‘Lenders have made it harder for self-employed borrowers to get a mortgage since Covid struck,’ said Harris.

‘They have been applying more forensic underwriting by asking for sight of their past six months’ business bank statements, along with projections for their future trading.

‘Some are indiscriminately bashing the self-employed by applying draconian criteria for no other reason than an applicant is not employed.’

Why has Santander decided to do this?

According to Santander, the decision was made to help speed up existing applications.

‘We regularly review our products to manage the volume of applications we receive,’ said Graham Sellar, head of business development at Santander.

‘Due to the additional paperwork involved, applications from self-employed customers can take longer to review and our recent changes will ensure we can progress existing applications as quickly as possible.’

With the 31 March stamp duty holiday deadline edging closer and the new lockdown causing logistical issues, many lenders are under operational strain. 

‘Santander has decided that employed borrowers are simpler and easier to deal with at this stage,’ said Andrew Montlake, managing directior at mortgage broker Coreco.

‘It appears they do not have the people or time to deal with the more onerous and complex underwriting that a self-employed applicant requires.’

But Nicholas Morrey, product technical manager at mortgage broker John Charcol, said that the financial security of employed people at the moment was hardly guaranteed. 

‘There are many self-employed people whose income has remained unchanged throughout the pandemic and to exclude them like this seems unjustified,’ he said.

 ‘Applications should be considered on their individual merits, and to cherry pick borrowers seems unfair to those whose financial situation is as good as an employed person – who could just as well be furloughed or work for a company about to go into administration.’

What is the advice for self-employed borrowers? 

There are still mortgage options out there for self-employed people, but they may be harder to find. 

For this reason, brokers said it was a good idea to speak to an independent advisor.

‘There is still choice available for many self-employed borrowers, although those in certain industries, such as travel and entertainment, will find it harder than most,’ said Montlake.

‘Lenders will want to see more documentation – so have your latest accounts, six months’ business bank statements and projections all to hand.

‘And prepare to be asked if your business trading has been affected by Covid-19, and if so, how this is going to change.’