Self-employed failing to secure a mortgage

House of Money: Self employed failing to secure a mortgageResearch by The Mortgage Lender has highlighted the number of self-employed people having difficulty in obtaining a mortgage. The report shows lenders are failing the self-employed by making it harder for them to get on the property ladder.

Over 670,000 self-employed people said that mortgage lenders had discriminated against them. These are sole traders, contractors and people running small businesses with up to nine members of staff, and if they are successful in securing a mortgage deal they are often left with limited choice.

A quarter of a million people in the capital say they are unable to move because of their employment status. Half of those in London who applied for a mortgage found it difficult to source and provide the required information that lenders need in order to complete the application, and many felt let down by the whole process. Thousands of people in London are living in rented homes, despite being able to afford a property with a mortgage, simply because  their employment status means a mortgage application would be rejected.

Chief executive of The Mortgage Lender, Peter Beaumont said: “The capital has approximately 235,000 people who would like to move house but feel like they can’t because they are self-employed. They are effectively ‘mortgage prisoners’. Self-employed people are creating employment opportunities and they form the backbone of our economy at a time when many large employers are finding it difficult to sustain their business models and levels of employment. Its important lenders recognise this reality and support entrepreneurs to live in the home they can afford. People’s financial circumstances are constantly changing. It’s why we believe in real life lending, we understand that life doesn’t move in a straight line.”

Self-employment levels are rising across the country with a significant rise of 53% since the year 2000 now comprising an estimated 15% of the total workforce. Sixty per cent of this growth is in the high skilled, high paying sector which indicates that the self-employed are more than capable of securing and paying for their mortgages.

Another study conducted by the lender Together found that applicants were often rejected because of lifestyle choices, not employment status.

Together used market research to carry out a survey of 2,000 people. 54% failed to secure a mortgage: 12% due to employment type, 10% because the property they wanted to purchase was not ‘standard’ and 3% were rejected because of insufficient employment history. This is regardless of the fact that most of them would be in a good position to repay their mortgages.

This does indeed suggest that lenders are not keeping up to date with modern-day lifestyles which have altered greatly within the last 30-40 years. The survey suggests mortgage lending is not fit for today’s lifestyles and does not take into account the way that jobs, wages and lives have changed. Fifty-four per cent of applications fell through for ‘normal’ lifestyle reasons according to research.

Finance chief executive of Together, Pete Ball, says that mainstream lenders need to keep up with demand and change with the times. “Some banks and building societies remained reliant on a computer automated approach, and outdated, rigid criteria when deciding mortgage applications but the world has changed,” he said. “The needs of the county have changed.”

Older households are missing out too, with nearly half of over 55s being denied a home loan, largely due to their proximity to retirement; but, with a population estimated to reach 16.4 million aged 65-plus by 2033, this could be a growing problem.

Are you self-employed and struggling to get on the property ladder?

It may be difficult to secure a mortgage to get on the property ladder, but it is not impossible. If you are self-employed you need detailed and meticulous accounts that are bang up to date. The self-employed may not receive a guaranteed, salaried income, but the key to success is to provide as much evidence as possible that you are able to afford repayments with your earnings. Most lenders will want to see at least two years accounts or tax returns, if not more. The more proof you have, the better, so ensure you have everything to hand.

You will need:

  • At least two years accounts;
  • An accountant;
  • A diary or record of all your regular work (future work would be good, too);
  • A healthy deposit;
  • A good credit history.

Having all these in place is a great start and will help you on your way to getting that crucial first rung on the property ladder.

If you’re buying an unusual property, particularly if it has been converted or a high rise property, ask a Chartered Surveyor to provide you with a survey to assess the condition and structural elements of your new property.

Back to March 2019 Newsletter