At the outset of the pandemic, much of this was true regarding the ability to secure a mortgage. More recently, 47% of self-employed workers still feel deterred from even applying for a mortgage because of their self-employed status.
(Source: The Mortgage Lender, August 2021)
But, let’s not forget that the self-employed sector comprises around 4.3m workers. Whilst that’s down on the 5m at the start of the pandemic, it’s still a sizeable part of the total workforce (around 13%). Of those remaining, many would have been nimble enough to adapt their offering in light of the economic climate.
(Source: Office for National Statistics, Labour market overview, September 2021 release)
Also, the resourcefulness and size of this marketplace is not lost on lenders, who seem to be easing some of their criteria restrictions. For example, some lenders appear to be more accepting of variable income streams such as bonuses, commission, or overtime, than before.
Although some are still unlikely to accept an application from anyone who received the Self-Employment Income Support Scheme (SEISS) within the last three months.
Plus, there’s the revamp of IR35, which may impact upon affordability issues for some. If you find yourself in this situation, then it would be prudent to also have a chat with your accountant.
Rates on offer
For those that can meet the affordability criteria required by lenders, they may benefit from the current interest rate price war. There are headline-grabbing ‘under 1%’ deals, largely for the 60% Loan-to-Value (LTV) borrowers. But the competition amongst lenders has meant that even at the low deposit deals for 90% and 95% LTVs, it’s still showing low average rates for 2-year fixed rate deals of 2.85% and 3.57%, respectively. With slightly higher rates for the 5-year deals.
(Source: Moneyfacts, 1 September 2021)
Insuring your income stream
In addition to having Life Cover insurance to help pay off the mortgage, and to support your family, you should protect your income stream too, if you were unable to work through an injury or serious illness. This could come in the form of a Critical Illness policy (as a stand-alone plan, or an add-on to life cover), and would pay out a tax-free lump sum on a successful claim.
Alternatively, there are Income Protection plans, which are designed to pay out a monthly income for a successful claim.
Yet, many self-employed and contract workers mistakenly believe that they’ll never qualify for this insurance protection. That is generally not the case and, in fact, this insurance is possibly even more important for the self-employed, who are unlikely to have employee benefits, such as sick pay.
Your home may be repossessed if you do not keep up repayments on your mortgage.
As with all insurance policies, terms, conditions and exclusions will apply.