Secured Loans for Self-Employed Workers Still a Safe Bet
Back in 2014, The Telegraph published a report outlining how some banks and building societies were easing restrictions on self-employed people looking to get mortgages. At the time, the environment was very restrictive for those who did not hold positions of traditional employment. Obtaining mortgages is now easier for the self-employed than it has ever been.
Jumping ahead to October 16 of this year (2015), a former Obama official addressing the annual LendIt Europe conference in London warned that online lending to businesses could lead to a future financial crisis similar to the one triggered by the sub-prime lending fiasco in America.
So, what do the two stories have in common? The one thing both failed to talk about: secured loans for self-employed workers. It turns out that such loans have been, and still are, a safe bet for banks and building societies. They are safe because of the collateral they require.
Putting up Your House to Borrow
You already know that a secured loan obtained against the equity in your home is a financing tool that forces you to put up your home as collateral to borrow tens of thousands of pounds. You also know that banks and building societies are more comfortable with these kinds of loans because there is tangible property involved. In the event of a default, the lender can always repossess the borrower's home and sell it to make good on the debt.
The built-in protection of secured loans is such that they really were a nominal factor in terms of contributing to the previous financial crisis. Even secured loans for self-employed people. The fact that more lenders are now making first mortgages to the self-employed only means more secured loans will be available to these customers as they pay down their mortgages and build up equity.
As for the worries of a looming financial crisis in the future, these are being fuelled by fears of predatory lending practices whereby brokers are referring customers for business lending who may not be very good risks. Officials are afraid that lenders will be enticed to make far too many risky business loans under the assumption that they will be protected by insurance and government guarantees.
Possible But Not Likely
History dictates that it is entirely possible that predatory lending within the business sector could lead to another round of worldwide financial problems. But experience says that is unlikely to happen. First of all, the housing crash of 2007/2008 was not entirely caused by predatory lending and sub-prime mortgages. Governments in numerous countries played a huge role in causing the crisis by manipulating financial markets. That is not a concern here.
Second, the only reason lenders were willing to make risky mortgage loans prior to the previous crisis is the fact that there were certain safeguards in place to protect them from financial loss. Those safeguards are no longer available. Reforms both here and across the Pond now require lenders to apply stricter rules for income qualification prior to lending. Those rules apply to business as well as personal lending.
The self-employed now have greater access to first-time mortgages thanks to the willingness of banks and building societies to change income verification rules. That means secured loans for self-employed workers should also remain readily available for the foreseeable future. This is good news for self-employed homeowners who want to take advantage of the equity in their properties to finance future business investments or make home improvements. Being self-employed is no longer the hindrance to borrowing it once was.
- Telegraph â?? http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/11139098/Finally-lifeline-for-self-employed-on-mortgages.html
- Business Insider â?? http://www.businessinsider.com/karen-mills-subprime-loan-brokers-us-online-small-business-lending-2015-10?r=UK&IR=T
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