More than three-quarters (77%) of Self-Employed workers, say that being self-employed makes it more difficult to be approved for a mortgage.
(Source: Pepper Money, Specialist Lending study, Winter 2022/23)
If you’re Self-Employed this can deliver many advantages in terms of the lifestyle you lead, the way you’re remunerated, and the opportunity to grow your income stream, but the ease of obtaining a mortgage isn’t one of them!
In short, the automated processes set up to assess the risk for both the lender and the borrower are largely formulated with the ‘regular income-earning’ employee in mind.
By contrast, a self-employed worker may have variable and seasonal income streams, plus utilise a range of remuneration methods such as – a regular (but possibly low) salary, dividend payouts, director loans, share of net profit, and so on.
Part of the problem is possibly the lack of resource, and enthusiasm from lenders to find a specific solution that works well for the self-employed.
In the midst of all this, it’s also an understandable annoyance to the self-employed, that an employee is likely to have all their income eggs in one basket, but could lose that job the day after getting a mortgage!
Conversely, if a self-employed worker faced a financial downturn, it’s quite possible that they would either have alternative plans in place, or immediately look to other options to help rebuild their revenue stream.
A sector comprised of over 4.3m workers
The fact that 1 in 8 of all workers are self-employed, means it’s a sizeable marketplace, plus the resourcefulness of this sector is also not lost on lenders.
So, the tide may already be turning, with some lenders taking a more favourable view, and easing their criteria restrictions.
(Source: Office for National Statistics, Labour market overview, February 2023)
Variable income streams
One example of this is that a number of lenders appear to be more accepting than before of variable income streams, including elements such as bonuses, commission, or overtime.
Justifying variable income streams will also be an issue for the wider working community, as well as the self-employed. This is because many salaried employees could also secure a sizeable part of their income stream from bonuses, or have the opportunity to work overtime to help boost their income.
– Financial concerns resulting from a loss of income caused by personal injury or illness is a worry for 46% of self-employed workers – up from 34%, before the pandemic hit.
(Source: The Exeter, Challenging Times survey, August 2022)
– The self-employed worker is likely to be more exposed financially should they not be earning, so it makes sense to consider the three main protection offerings; life, income protection and critical illness.
– With regard to Income Protection cover, many self-employed (and contract workers), mistakenly believe that they’ll never qualify for this cover – which is designed to pay out a monthly income for a successful claim.
This is generally not the case and, in fact, this insurance is possibly even more important for this group, who are unlikely to have employee benefits, such as sick pay.
If any of the above applies to you, then it’s vital that you turn to us for advice, as we can sit down and go through the various options to consider, ahead of identifying the more amenable, and suitable lenders.
As with all insurance policies, terms, conditions and exclusions will apply.
Your home may be repossessed if you do not keep up repayments on your mortgage.