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How self-employed clients can secure a mortgage easily
A common misconception among the self-employed is that applying for a mortgage is difficult, and therefore, so is getting onto the property ladder. However, in truth, the specialist mortgage market has evolved significantly to make it easier for those with irregular or complex income to secure a mortgage.
Catering for the borrowing needs of the self-employed has become majorly significant as this demographic represents a strong proportion of UK population. April 2022 figures from Statista showed that there were approximately 4.21 million self-employed people in the UK.
Self-employed status has been commonly used to refer to freelancers, contractors and sole traders, yet it can also extend to company directors, individual partners and anyone not in a salaried employee position, and more recently, Gig economy workers.
According to 'Fuelling the Global Gig Economy', a report by Mastercard, an estimated 7.25 million were predicted to be working in the UK’s gig economy (where people earn an income per project or task) by the end of 2022. Understanding and catering for this growing demographic is more important than ever.
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For intermediaries looking to secure a mortgage for a self-employed client, one of the most important elements to consider is whether a lender can assess each application on its own merits rather than adopting a one-size fits all approach. The fluctuating nature of self-employed income levels means no two applicants are the same, so tailored individual underwriting can prove crucial.
In many cases, the mortgage products on offer to self-employed clients are the same as those for employed borrowers; only the process of how the loans are assessed differ.
Different companies have varying ways to manage balance sheets, cash flow and the distribution of profits and dividends, which is why individual assessment by the lender is necessary.
Traditionally, it takes two to three years’ worth of required audited accounts on application, with net profits and director’s remuneration plus dividends considered as income for those running a limited company.
However, at Foundation Home Loans, we consider a minimum of 1 year’s accounts, and where a company director owns 20% or more of the company shares, they will be classed as self-employed.
Mortgages for the self-employed are a particularly important area for brokers to market because of the lingering misconceptions around them. In our own borrower survey, 62% believed it is significantly more difficult to secure a mortgage as a self-employed person, although only 14% had been turned down because of it.
It will be mortgage intermediaries who open doors for those clients, and the specialist lending marketplace who will continue to deliver the solutions which can make a real difference for the self-employed population.
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Mark Whitear, Director of Commercial Development at Foundation Home Loans
Self employment in the UK 2022 | Statista
*This article was originally published on Mortgage Solutions
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