Navigating the self-employment landscape in the UK

Just a few years ago – many hundreds of thousands of people in the UK were either actively deciding self-employment was for them, or via a range of circumstances, finding themselves in a situation where they had to work for themselves.

Government statistics reveal that, at the start of 2020, the number of self-employed in the country had risen to a high of five million, and while – as of February this year – that number had come down to 4.26 million, it is still some way above a low of 3.2 million, in December 2000.

However, from an income point of view, self-employment can be viewed very differently, particularly for high-street lenders who have often had difficulty getting to grips with the finances of the self-employed, particularly over the period when they have moved to this status.

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It’s also the case that income can fluctuate more for the self-employed, and not necessarily from a higher to lower income. Many individuals who move towards self-employment boost their incomes significantly, with the benefits of working for themselves, deciding their own rates and cutting down on costs.

We do need to recognise how some lenders approach the finances of self-employed mortgage borrowers, there can be significant discrepancies. In a large number of cases, the self-employed move into the realms of specialist residential lending, having not been deemed appropriate by the high-street.

We see a wide range of self-employed borrowers via mortgage advisers, and it is important to have a hands-on, individual-focused approach to underwriting these cases, particularly for those clients who are in the first year of trading after going self-employed, or they may have joined a new business as a self-employed Partner part-way through the tax year.

It's highly likely their finances pre- and post-moving self-employed might look very different, and as a specialist lender in this market, we have to be flexible. We’re able to use net profit and salary or salary and dividends, whichever works best for the client. We can also consider if they plan to run their business past State retirement age; if it’s non-manual work, we can take their self-employed income into account up to age 75.

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The experience of the client is also reviewed, it’s not simply a review of the situation now, but an understanding of where they have come from and where they are going.

Overall, it should mean that self-employed individuals – whether looking to purchase a first home, move up the ladder, or remortgage an existing one – have options available to them, and they have all their individual circumstances considered.

*This article was originally published on Financial Reporter 

References:

Self-employed stats - https://www.statista.com/statistics/318234/united-kingdom-
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20the%20UK%201992%2D2024&text=As%20of%20January%202024%2C%20
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