Self-Employed Resilience
By Jonathan Evans, Business Development Manager, Scotland, Skipton Building Society for Intermediaries.
The growth of self-employment has been one of the key features of the UK labour market for the past two decades. At the end of 2019, there were more than 5 million self-employed people in the UK, representing 15.3% of total employment. There are many benefits to working for yourself, however, during the COVID-19 pandemic it could’ve been difficult for some due to restricted trading measures, and others unable to claim government support. The ONS estimates that almost 300,000 workers changed their status from self-employed to employed between the second and third quarter in 2020, the highest number since 2005.
Although, as we’ve progressed through the past 16 months, the industry has also seen self-employed applicants’ resilience to the current difficult trading environment. We’ve seen many applicants who adapted their trading model. This produced various outcomes, from keeping a business afloat, due to making the business more efficient, to all-out growth and penetration of new sales channels and markets. This is testament to the hard work, grit and determination of so many business owners up and down the UK. In addition to this we’ve seen many businesses taking advantage of the Government schemes available, such as the Self Employed Income Support scheme (SEISS), complimented by Business Bounce Back Loans/ Coronavirus Business Interruption Loans taken as cheap sources of funding that add cash into the business to support the uncertain trading environment.
The Government’s help raised concerns for some lenders, as the cheap funding that flooded the market has now “put a plaster” over many struggling businesses.
“As an example, the SME market received £47bn of Business Bounce Back Loan funding in during the pandemic. This was the equivalent of 85% of all SME lending by banks for the whole of 2019.“
The events over the past 16 months triggered lenders to review their credit risk appetites and adjust where required. We’ve seen lenders restrict LTVs for self-employed applicants, treating them separately to employed applicants. I’m aware that some lenders don’t currently lend to applicants if they’ve taken government help.
At Skipton, our approach is more holistic with a human touch. Our underwriters take a pragmatic approach when dealing with all cases, not just self-employed. We haven’t restricted self-employed clients on LTV, at the time of writing we currently consider them up to 95% LTV and have done so from our return to 95% lending in early 2021.
We don’t penalise them for taking advantage of Government help. We look at how long a business has been established and what sector the business operates in. We accept an Accountant’s Certificate to capture the last 2 years trading and income information and it also has a section for the accountant to comment on how trading was or is impacted.
The underwriter also looks to see what the cash position of the business was at the time the accounts were prepared and what it is now in the bank statements, we take a more lenient view when a business has shareholder funds resulting in a positive net worth. We also ask for the latest 3 months’ business bank statements (or 3 months’ personal statements if the business is operated via the personal account). The underwriter assesses the trading turnover of the business through the statements and is ideally looking to see that the business is back trading at within 80% of the pre-COVID levels on a pro rata basis. We’ve had a lot of positive feedback from brokers and customers about how we’ve handled self-employed applicants during this difficult time and this really brings to life our values, culture and proposition.
On a more positive note, trading restrictions have currently been eased in most business sectors and we’re now in a much better position to assess the trading activity of a business, although we must remain flexible but also vigilant over the coming months.
I know that Skipton Building Society for Intermediaries quickly accepted the new reality for self-employed applicants and will continue to do what we can to support and assist them in their dreams of home ownership.
If you have any cases to discuss with Skipton, please contact your local BDM, Telephone BDM or our broker support team via web chat, or phone 0345 601 6683.
These views are Jonathan’s own.
