With more people facing financial anxiety due to COVID-19, this has made some unsure about mortgage borrowing and other loans. How can you better prepare for applying for a mortgage?
Recently, Shawbrook Bank looked at the UK’s biggest anxieties with personal loans and understanding financial jargon. After a year of lockdowns due to the COVID-19 pandemic, some Britons have lost their jobs, have been on furlough or are facing job uncertainty. Because of this, it’s not surprising that many Brits are feeling anxious about their finances.
Throughout the pandemic, this uncertainty has made mortgage borrowing more difficult for certain Brits. And understanding mortgages as a whole is having an impact on the self-employed in particular.
Confusion among the self-employed
The report by Shawbrook Bank revealed one in three Brits, or around 35% of those surveyed, believed they may not be able get a mortgage due to being self-employed. Within that group, 23% were unsure if they would be able to secure a mortgage. And 12% said they wouldn’t be able to. It’s a common myth that those who are self-employed won’t be approved for a mortgage.
Self-employed workers have often faced a more difficult process when attempting to secure a mortgage. They usually must prove at least two years of work. This may make it more difficult for those who turned self-employed during the pandemic. However, some lenders are open to directly working with self-employed people.
In recent years, the UK mortgage market had expanded for freelancers and self-employed workers. Some lenders may be cautious, especially for those who work in certain sectors. And rates are usually higher for self-employed workers.
While lenders require self-employed borrowers to jump through some hoops to secure a residential mortgage, the criteria for approving buy-to-let mortgages was relaxed at the beginning of 2020. It became possible to apply for a buy-to-let mortgage as a self-employed person without two years’ worth of accounts. This made it easier for the self-employed to invest in rental property.
With the number of self-employed people increasing across the UK, lenders will likely further adapt to this. More products could be brought forward for this growing consumer base. Locating a broker who specialises in self-employed mortgages may be the best option to secure a good mortgage deal.
Complicated financial jargon
The survey also revealed that 59% agree that the language used in loan applications is not easy to understand. More than one in two confirmed that this confusing language would put them off applying for a personal loan.
Only 16% admitted that they read the terms and conditions of a finance agreement ‘very thoroughly’ before going ahead with applying. When seeking a mortgage, it’s highly recommended to seek independent professional advice to better understand the financial jargon of different products.
Tips for reducing financial anxiety
Sally Conway, head of consumer communications at Shawbrook Bank, shares tips for reducing financial anxiety. These can be helpful if you are planning to apply for a mortgage in the near future.
Educating yourself can help you understand mortgage borrowing and what a lender is likely to lend to you. Knowing your credit score and ways to improve your mortgage application can help you better prepare and make more informed decisions.
Sally states: “Anxiety stems from a fear of the unknown. As they say, information is power so you should take the time to get clued up when it comes to money matters.
“The bottom line is, by taking a proactive approach and educating yourself about financial products and money management, the less anxious you’ll be.”
The mortgage market in particular is currently offering a range of products with varying incentives, fees and rates. To get the best mortgage deal, homebuyers and property investors need to effectively compare all of the costs involved and incentives offered with different mortgages.
“When it comes to money matters & financial products, shopping around is extremely important,” she says. “There is a lot of choices out there and you’ll need to do your research to find the best deal for you.”
It’s important to seek professional financial advice before making any financial decisions. A mortgage broker can help you assess the different mortgage products available, understand the true cost of each deal and decide what is best for your circumstances.