Self-employed may feel chill from Covid-19 for some time
The self-employed face mortgage struggles.
All business owners are weighing up the effect of the Covid-19 closures on their trade at present, with many trying to take an optimistic view by planning for reopening. Social distancing in offices, new shift patterns, deep cleaning and perspex screens are all in the mix as managers imagine a return to some form of normality.
One significant segment of the economy which may take some time to return to anything approaching normal is the self-employed.
If we look back to the last recession, we can see that the economic crash cast a long shadow over that sector, as evidenced in the income tax take for the self-employed.
In 2007, that tax take was €2bn. By 2010, it had plunged to €800m and it took five years to recover to its pre-crash level.
On a practical level, a fall in income for the self-employed may well have a longer impact than on PAYE workers.
As the Sunday Independent has been reporting, the mortgage market is becoming more restricted for borrowers.
On the one hand, the banks are wise to take a prudent approach to lending given the uncertainty being faced by many would-be homeowners.
It is in no one’s interest that people take on debt that they cannot repay.
On the other hand, it is close to impossible for many workers and their employers to give guarantees about long-term job security and pay levels.
The obvious exception to this is public sector workers.
The self-employed are likely to face the greatest challenges when it comes to mortgages – possibly for some time to come.
It has always been more difficult for the self-employed to get a mortgage, largely due to the fact a bank can easily get an up-to-date picture of a PAYE worker’s income.
For someone who is self-employed, typically a bank will want to see three years of accounts, as well as paperwork filed with Revenue.
Tax returns always trail a trading year. For example, accounts for 2019 are not expected to be filed until October 2020. Banks are currently asking for up-to-date bank statements and for many self-employed people, they will not paint a pretty picture.
Assuming their businesses get back to normal in a few months’ time, the current dip in business could hang over the self-employed for some several months.
Banks will want to see a longer-term trend that it’s back to business as usual.
Mortgage broker Michael Dowling told me: “Unfortunately, it is going to be very, very difficult for a self-employed person to get a mortgage over the next 12 months, because every self-employed person – unless contracted by the HSE or another public agency – will have suffered a fall in income for at least three months and probably more.”
Banks like to have three years’ worth of accounts so they can average out income. This average figure is the basis for how much they are willing to lend.
Based on how long it took self-employed income tax to recover from the jolts of 2008, normal is further away for some than others.
Retail to endure long recovery
Fashion chains Oasis and Warehouse went into administration last week, while provisional liquidators were appointed to Debenhams.
It doesn’t bode well for a post-coronavirus retail environment. Empty units do little to encourage shoppers to whip out their credit cards.
Back during the last recession, there were lots of articles counting just how many shop units were left vacant on Dublin’s premier shopping thoroughfare, Grafton Street. It doesn’t happen overnight but as we saw over the last decade, vacated shops will fill up. However, it does take time to get shopping centres and city streets buzzing once again.
Of more immediate concern for retailers will be consumer behaviour when things do edge back to normal. Some of the early reports from China aren’t too encouraging.
According to a recent report in Nikkei’s Asian Review headlined ‘China’s retailers face hard truth: If you reopen, they won’t come’, shoppers have been slower to come back than shop owners.
Electronics retailer Suning.com said some of its bricks-and-mortar stores were attracting around half the usual customer volume.
No doubt consumers here will be initially nervous about getting back into bustling shops, while others will have little or no discretionary income for some time. And some will just have got used to shopping online.
News by independent.ie, edited by Dowling Financial.
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