Mortgage overhaul hurts entrepreneurs
NEWS that the Financial Services Authority (FSA) plans to overhaul the mortgage market may have left some entrepreneurs a little uneasy. From now on, to get a mortgage you need to pass an “affordability” check and self-certified mortgages will be banned.
Business groups were quick to state the drawbacks of these plans: “Business owners who have to self-certify their mortgages will be penalised personally for their decision to become entrepreneurs,” says Phil McCabe, spokesman for the Forum of Private Business. And indeed it appears that the playing field is far from level for entrepreneurs when it comes to gaining access to mortgages.
Neil Brooks, an independent mortgage advisor and founder of Coffey Brooks Financial Services Limited, says that very few self-cert products have been available since the financial crisis and the self-employed have had to deal with tighter home-lending conditions. “Some lenders now require two years’ worth of signed accounts,” says Brooks.
He adds that unlike applicants who are employed by a company and have regular pay cheques coming in, the mortgage granted to a self-employed applicant is based on the net profit they make – their income after expenses. This contrasts with other applicants whose expenses are not taken into account. “This lowers the income multiple that the self-employed person can use to get a mortgage, and in this sense they are at a disadvantage.”
So what can entrepreneurs do to get a loan? Brooks advises that they go to a chartered accountant to get their income certified before trying to look for a mortgage. For start-ups without a full year’s worth of accounts a mortgage is not impossible. Some lenders will take into consideration accountants’ references and also earnings projections, certified of course.
But this makes the whole process more onerous for entrepreneurs, says McCabe: “This just makes their lives more difficult since there is a cost and time implication.”
But will it actually put people off becoming entrepreneurs in the first place? Simon Dolan, a serial entrepreneur and founder of SJD Accountancy, says no. “The sort of person put off from becoming an entrepreneur because they won’t be able to get the house they want is not the type of person to start their own business anyway,” he says.
You can’t keep an entrepreneurial spirit down. However, entrepreneurs lives’ just got that little bit harder.