Mortgage lenders refusing to lend to recipients of Covid money

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The long-term impact of Covid is beginning to be felt by people hoping to buy their first house or move home, as some of the country’s biggest mortgage lenders choose to brand those in receipt of Covid-related grants as high risk.

The decision affects those in receipt of self-employed grants as well as those who have received furlough money.¬†Several sectors have been forced to completely shut down as a result of the government’s Covid policies, with those working in hospitality, tourism and entertainment most likely to have been affected.

NatWest and the Royal Bank of Scotland are refusing to accept mortgage applications from anyone who has applied for the government’s self-employment grant (SEISS) since July 2020. The TSB and Yorkshire Building Society are asking for evidence that the business has recovered since the pandemic.

When assessing self-employed mortgage applications, lenders will traditionally look at accounts from the last two years. This means that mortgage applications could be affected for another two years.

Some lenders are asking self-employed borrowers to find a larger deposit. The Metro Bank requires a deposit of 20% or more from those who received the SEISS grant and Santander is asking for a 25% deposit from the self-employed.

Other lenders, including Lloyds, TSB, Yorkshire Building Society and Virgin Money, are simply refusing to consider mortgage applications from anyone on furlough, as it is not accepted as income in the banks’ affordability assessments.

The Financial Conduct Authority (FCA) says these policies go against their assurances and that banks should not use them to prevent people from accessing credit. Consumer group, Fairer Finance, is asking the regulator to go further by investigating for itself which lenders are taking this stand and to take action.

A survey by the Association of Independent Professionals and the Self-Employed (IPSE) found that 60% of self-employed borrowers felt that lenders were penalising them for being self-employed, and over 70% said some lenders had refused mortgage lending because they were self-employed.

Industry body, UK Finance, defends the decisions being made, saying that lenders are required to carry out a thorough check of income and affordability when considering lending for mortgage purposes.

The Bank of England has said that banks will be key to recovery, and must support firms and households as government support is withdrawn, even though the risk of Covid remains. Findings from the Financial Stability Report suggest that banks are well placed to provide support and the Bank of England has removed curbs on dividends from banks after 19th June.

According to the Office for National Statistics, there are over five million self-employed people in the UK. Emergency business loans will become due for repayment from September, when the furlough scheme will also end. At an increase of 25% since the end of 2019, smaller businesses are deemed to be the most vulnerable to debt accrued during the pandemic. The rise in indebtedness of larger firms over the same period was just 2%.

The Bank of England reported that 11.8% of small firms in the hospitality sector had either already defaulted or were behind on their loan repayments.

However, household indebtedness has fared better with just a ‘slight’ increase in average debt, and 80% of those who had deferred their mortgage repayments have now returned to full payments.