The way we work has changed, with a steep rise in the number of self-employed people in the UK over the past two decades, but has the mortgage market kept up?
Anyone who has tried to borrow money to buy a home or invest in property while self-employed will have experienced the additional layers of difficulty that this can present. Often, lenders require two or more years of accounts as proof of what the buyer can afford, while others ask for higher deposits.
However, the number of self-employed people in the UK has increased drastically over the past 20 or so years, meaning demand for mortgages that cater to this buyer type has risen. More lenders are now beginning to work with people who work for themselves, and this includes property investors and landlords.
According to the most recent figures from the Office for National Statistics (ONS), there are now around 4.3 million self-employed people in the UK, of a total workforce of just less than 33 million. A further 8.3 million work part-time and 1.7 million have temporary contracts, both of which can make getting a mortgage more tricky.
But as a sign of how much the market has changed, in 1992 there were around 3.5 million people working for themselves – almost one million less than today. So there’s much more impetus for lenders to broaden their options to cater for the growing number of people who work differently.
Getting a mortgage when self-employed
If you’re self-employed, there are a number of products available to you in terms of borrowing to either invest in property or to buy your home. Often, though, people with more complex work situations tend to use a broker, who has the expertise to access a full range of options across the market.
You should have the same rates available to you as employed people, but some lenders want you to have a higher deposit. Your credit score will be very important, too, and most lenders will want to see two or three years of accounts to ensure you can afford what you hope to borrow.
You’ll need to provide the same evidence to secure your mortgage as anyone else who applies, including proof of identity such as a passport or driving licence, proof of address (recent utility bills), six months’ worth of bank statements and evidence of your deposit money.
If you are relatively newly self-employed and can’t provide two or three years of accounts, you may need to speak to a broker or lender about how else you can prove your ability to pay off your mortgage.
Generally, mortgage providers will lend you up to 4.5 times your annual income, but this will depend on your circumstances. The bigger your deposit, the better mortgage rates will be available to you, so it’s worth saving up as much as possible to make the process smoother and avoid disappointment.
You can even get a joint mortgage with someone else who is also self-employed. They will be under the same obligation to provide evidence of their income, but it shouldn’t make obtaining a mortgage any more complex, whether you’re a homebuyer or an investor.
Difficulties in the current climate
Some recent research carried out by Mortgage Broker Tools found, before the Mini Budget last September, 28% of mortgage enquiries from self-employed applicants were not able to borrow the sum they had requested due to being deemed unaffordable. After the Mini Budget, this figure humped to 37%.
It is therefore more important than ever to carry out your own due diligence, and work with a broker or adviser before you apply for your mortgage, to make sure you will meet all the criteria.
According to Susan Baldwin, interim head of lending at Evolution Money, affordability will “remain a key issue for many borrowers this year”.
“Therefore, the inability of a lender to take a bespoke approach to a self-employed borrower’s income could see borrowers unable to borrow as much as they need, whether this be for debt consolidation or home improvements,” she said.
“Chancellor Jeremy Hunt’s ‘back to work’ Budget is the first step in what is likely to be a prolonged push by the Government to get more of the UK’s estimated 19.1 million ‘economically inactive’ adults back into some form of work. This may see some increase in self-employment and non-standardised hours employment.
“The mortgage and second charge industry will have to meet this with a commitment and willingness to cater to and help these types of borrowers.
“If the number of self-employed borrowers continues on the upward trend, it will be crucial that when such clients seek financial help, we are able to accommodate their needs and assist this key group of borrowers.”
