Nearly two-thirds of self-employed say it’s significantly more difficult to secure a mortgage, according to Foundation Home Loans research

02 November 2021

According to research by Foundation Home Loans, the intermediary-only specialist lender, almost two-thirds of self-employed individuals believe it is more difficult for them to secure a mortgage, and three out of five believe some lenders don’t want to deal with them because of their self-employment.

The research, carried out by BVA BDRC on behalf of Foundation, interviewed 300 individuals on their housing aspirations during August.

Of those interviewed, 100 were self-employed and 200 employed, and they were asked to give their views on their current housing arrangements, their ability to secure mortgage and other finance, the potential obstacles they have to overcome, and how their financial situation and credit score might have changed as a result of the pandemic.

A majority of the self-employed interviewed (59%) believe it takes longer to apply for, and secure, a mortgage because of their self-employed status, and one in two said there is a restricted choice of lenders available to them (51%). This has resulted in only 39% of self-employed people thinking it is now a good time to be a homeowner, compared to almost half (47%) of employed respondents.

However, the research also shows there may be a disconnect between perception and reality when it comes to mortgage accessibility, with just 14% of those self-employed individuals saying they had actually been declined a mortgage as a result of being self-employed.

Those questioned offered a number of messages to lenders around the way they work with self-employed borrowers asking lenders to: take full account of all income; consider all of the time spent working for themselves; look at each case individually; and be more flexible.

Positively, the self-employed were more likely than their employed counterparts to have used the services of a mortgage adviser or IFA when arranging their current mortgage: 44% compared to 31%. Foundation said this shows the opportunity for advisers with the self-employed especially given the perception that they encounter greater difficulties in securing a mortgage.

Self-employed respondents were also asked to share their financial experiences over the last two years since the onset of Covid. Positively, nearly three-quarters of self-employed respondents said they had experienced no negative financial experiences, and the self-employed were three times less likely to have fallen behind with loan or credit card payments than employed individuals over the last 12 months. 13% of the self-employed respondents stated they had taken a Government grant or loan for their business.

In terms of credit scores, however, the self-employed are, on average, more likely to have a low credit score and were more likely to have seen ‘a big reduction in income for any other reason’ over the last 12 months. Yet almost half – 42% - of the self-employed have never carried out a credit check, again pointing to an opportunity for advisers to outline the reality of their financial situation to self-employed borrowers.

Foundation offers a range of mortgages for the self-employed with criteria including an acceptance of one year or the latest year’s accounts, manual underwriting of the self-employed individual’s share of the net profit plus the director’s salary and accepts two years’ average retained profit and the latest year’s income. Foundation can accept income from UK land and property, up to 100% of a wide range of incomes including State and private pensions up to age 75, and up to four family members’ incomes up to 80% LTV.

George Gee, Commercial Director at Foundation Home Loans, said:

“What is clear from this exclusive research is we are seeing a disconnect between the perception of self-employed borrowers in terms of what they can secure in the mortgage market, and what might actually be available to them, based on their financial circumstances, their experience over the last 12 months, and their ongoing credit-worthiness.

“There is no doubting however that for many self-employed, that perception of restricted mortgage choice is indeed accurate post-pandemic: their options have been reduced simply because the way these customers are assessed by some lenders no longer meets what is required in this new landscape of more complex employment and income types. A blanket approach based on a very limited view of borrowers’ recent financials, or an assessment purely based on the sector they work in, cannot give a fair view of their creditworthiness, and it’s because of this that more self-employed borrowers would be better served looking at non-mainstream routes.

“However, there is a lot to be positive about here, particularly in terms of the strength of the financials of these self-employed existing, and prospective, homeowners; the majority have not endured negative financial experiences since the onset of the pandemic, and only a small number are being declined for mortgages.

“There are some key messages we need to get across to the self-employed borrower base though and they involve outlining that not all lenders approach them in the same way. There are many calls for flexibility and to be treated as individual cases not a homogenised group, and that’s certainly the way we work with the self-employed at Foundation, trying to understand their individual circumstances, taking into account various income sources, their current situation and recent history to ensure we are able to provide a fully-rounded decision on their mortgage affordability, so these borrowers get the mortgages they require.

“This research also stresses the ongoing need for adviser intervention, and for us as an industry to continue to direct the self-employed down the advice channel because by doing this they will have a much better chance of securing mortgage finance, and their customer experience will be greatly enhanced.”

For more information on Foundation Home Loans, please visit: www.foundationforintermediaries.co.uk