Research from online mortgage broker Trussle reveals that nearly three in four (71%)5 of self-employed workers believe it’s harder for them to get a mortgage, as they face more challenges than fully-employed workers during the application process.
Data taken from Trussle’s annual Mortgage Saver Review 6 reveals that there are 4.85 million self-employed workers in the UK7, 15% of the working population8, and this is estimated to rise to 5.5 million by 20229.
Despite the growing self-employed workforce, Trussle’s research reveals the hardships that self-employed workers often face when applying for a mortgage. One fifth (22%)2 admitted to feeling penalised for being self-employed and one in ten (11%)10 said they felt victimised or overlooked during the application process.
Below, Dilpreet Bhagrath, Mortgage Expert at Trussle comments on three of the ways the mortgage process can differ for self-employed workers.
Application Process and Assessment
“The process of determining affordability can be much more convoluted for the self-employed. Most lenders require at least two years of certified accounts and SA302s, proof of your deposit or last mortgage statement, your latest three bank statements, proof of address and identification.
“The way self-employed people are assessed varies between lenders, making applying for a mortgage more confusing and increasing the chance of errors.
“Some self-employed workers, like contractors and freelancers, are assessed purely on their day rate, but others are judged on the average of their past two years of earnings, regardless of what they earn at the time they apply for a mortgage. Some lenders will also classify self-employment as how much of a business someone owns, which altogether leads to inconsistent lending criteria.
This can make it harder for self-employed people to pass their lender’s affordability test. Just 5%11 feel their financial assessments during the mortgage process are fair.”
“In most cases, self-employed workers will also be asked to provide more documentation than someone in permanent employment would.
“Some of the financial documents required in a self-employed mortgage application can only be accessed by HMRC or by hiring an accountant, making the process even more costly and time consuming. Our research found that 33%3 of self-employed borrowers thought gathering information for their application was a challenge, proving how taxing the process can be for them.
“To avoid any issues that could delay or prevent you from getting your loan approved, make sure your details and accounts are kept up to date and in order. Having separate business and personal bank accounts will also help to keep track of any spending, expenses and income, and to align your accounts properly during the application process.”
“Of those borrowers who opt to pay for advice, typical broker fees can cost around £5004 to process an application from someone in full-time employment. But, one in five (21%)4 of self-employed borrowers admitted they were required to spend much more due to the complexity of their cases, with amounts reaching £2,500 – 400% higher than what fully-employed borrowers generally pay4. It’s important to note that there’s a lot of free advice available to cut costs during the mortgage process, including free brokers like ourselves.”
Dilpreet Bhagrath adds: “The number of self-employed workers in the UK could soon outnumber those in the public sector, yet they face more challenges when applying for a mortgage. If you are self-employed and looking for a mortgage, we’d advise you to speak to a mortgage adviser first, be prepared with at least two years of documentation, keep your personal and professional accounts separate and register for the electoral roll too, as this can help increase your chances of getting a mortgage.
“Most importantly though, don’t be put off for applying for a mortgage. Although the process can seem daunting, there’s plenty of free advice and policies available to help make it easier. At Trussle, we’re using our own data to help design better mortgage products, provide support and advice to borrowers and work with lenders to prevent them discarding anyone who deserves to be accepted, all to make mortgages more accessible to everyone.”
To read the Mortgage Saver Report in full, please click here: https://trussle.com/blog/post/mortgage-saver-review-may-2019