Self-employed borrowers who have been frozen by banks since the blockage get some hope as the small construction company offers a new mortgage
- Self-employed people have so far been hard pressed to find a mortgage this year
- Banks have limited who they lend to as concerns about the economy loom
- A new deal could help by making those affected pay interest for only one year
Self-employed individuals looking for a mortgage may have come under pressure this year, but may now have hope with a new deal from a small construction company.
While major banks have turned their backs on them, Beverley Building Society has launched a deal specifically designed for self-employed borrowers affected by the financial impact of the virus.
Self-employed people have suffered a mortgage shortage in recent months after banks and large construction associations raised the drawbridge for borrowers they saw as more risky after the outbreak of the corona virus.
The deal is designed to help self-employed people whose businesses have been affected by the corona virus
These lenders have limited lending because of house price concerns and as restrictions on closing mortgage payments keep them struggling to process vacation requests for mortgage payments.
Self-employed borrowers, who were struggling to obtain loans before the outbreak, were hit hardest.
Unusually, the Beverley deal offers borrowers a 12-month period with no interest before switching to a full capital repayment mortgage.
During this first year, the borrower only pays the interest on the mortgage, which means that he does not actually pay off the actual loan.
This does mean that the monthly repayments in the first year of the mortgage will be considerably cheaper.
For example, paying only the 3.49 percent interest on a £ 100,000 loan taken out over 25 years would result in monthly installments of £ 291, compared to the £ 500 a borrower would pay monthly on a standard mortgage for capital repayment.
This may be helpful for a borrower whose company has been temporarily affected by the coronavirus, but expects to return to normal within the next 12 months.
There are two fixed interest terms, two years and three years. Interest that includes only part of the mortgage is included – so, for example, if a borrower takes a two-year fixed rate, one year is only interest on the fixed rate and one year’s repayment before switching to the standard variable rate from the lender or remortgaging to another deal.
Who can apply?
Beverley Building Society says it will assess the borrower’s ability to repay the loan based on annual accounts.
This means that only those who have been self-employed for at least 12 months are eligible.
All transactions and professions in England and Wales will be considered, and the lender says the decision to offer a loan will take into account the long-term track record, industry, professional qualifications, experience and future prospects “.
The construction association says that people whose businesses have been temporarily affected by the pandemic are welcome to sign up.
However, as mentioned above, the lender will carefully review the company’s credit prospects before borrowing.
Loans are available to those with a 25 percent down payment on the property’s value – although the lender says it will “consider” 20 percent down payments for established businesses.
Is it good?
Unusually, there is no fixed rate for this deal, with the rate determined based on the circumstances of each borrower.
The association says it offers a range of variable and fixed interest rates, ranging from 3.49 percent to a maximum of 1.52 percent.
Self-employed people have had mortgage pressure since the start of the lockdown in recent months
A spokesman for the group told This is Money: “The final rate offered will depend on each applicant’s individual circumstances and factors, such as how new or established their company is, their track record and the extent to which they have been affected by the pandemic . ‘
David Hollingworth of real estate agent L&C Hypotheken
It is likely that the riskier the lender thinks you want to lend to him, the higher the rate will be.
But even the lowest advertised rate of 1.52 percent on this deal isn’t particularly cheap.
The two-year average fixed rate of 75 percent from loan to value loan-to-value today is 1.92 percent according to Moneyfacts financial experts, but there are many cheaper options – the lowest being from Leeds Building Society for just 1.14 percent .
And the higher rate of 3.49 percent is very expensive for a 75 percent loan-to-value loan.
With a £ 100,000 loan over 25 years, this would mean a monthly repayment of £ 500, compared to £ 420 on the industry average of 1.92 percent.
For those struggling financially right now, there may be few options available other than waiting for lenders to ease some of the restrictions they have put in place since the close.
Speaking to an independent financial adviser can help you figure out the best solution for you.
David Hollingworth of L&C broker said, “Lenders still offer deals for the self-employed, but may seek more certainty about the impact of coronavirus on business.
“The Beverley initiative is a good reminder that the mortgage market is made up of a wide variety of lenders and those who feel their circumstances do not suit one lender should not give up shopping.”