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Self-employed still facing mortgage obstacles

Self-employed workers are still facing significant obstacles when it comes to obtaining mortgages, new research suggests. A study carried out by Nottingham Building Society has found that one in eight self-employed applicants have been turned down for a home loan since they started working for themselves.

The figures indicate that the high level of rejections are not primarily a result of self-employed workers earning less than they did as members of staff: the Nottingham said that 48% of those questioned said they earned either the same amount as in their previous jobs or more.

The research also found that the self-employed were facing barriers in obtaining other forms of credit: 14% of those who had recently started working for themselves said they had had credit-card applications turned down while 10% said they had been rejected by a personal loan provider.

Growing pressure for a fair deal

There is growing pressure on both lenders and regulators to ensure that self-employed applicants are getting a fair deal on mortgages given the recent trend towards more people deciding to work for themselves. Official figures show that there are now almost 4.7 million self-employed people in the UK, up from 3.8 million in 2008.

The Nottingham said that 86% of mortgage brokers thought that banks and building societies should do more to support the self-employed by offering a greater range of home loans. Almost a quarter of brokers expect applications from the self-employed to increase over the course of 2016, while a third said that applications rose last year.

Affordability not the issue

A recent investigation by City watchdog the Financial Conduct Authority found that stricter rules on mortgage affordability were not a reason for providers to limit lending to the self-employed.

Ian Gibbons, Senior Mortgage Broking Manager at Nottingham Mortgage Services, said:

Self-employment is growing rapidly and being your own boss should not mean you cannot successfully apply for a mortgage.

Our study shows self-employment can still be an issue when applying for a mortgage, with nearly one in eight being turned down despite many earning more than they were in full-time employment.

Gibbons added that several lenders did offer mortgages tailored specifically for self-employed borrowers, and the issue may be that such workers simply did not know where to look.

But figures published earlier this year by the Intermediary Mortgage Lenders Association (IMLA) showed that mortgage brokers were indeed having difficulty finding loans for self-employed clients: 40% of brokers said they had been unable to find such a deal at some point in the previous six months.

However, this figure was lower than the 47% failure rate recorded in mid-2015, suggesting that the availability of mortgages to self-employed borrowers may be improving to some degree.

Jamie Challis of Crunch Mortgages provided this advice to self-employed professionals seeking a mortgage:

Seeking advice from an independent, specialist broker is crucial. Providing you can demonstrate one to two years’ experience in your profession, we can access lenders that will underwrite the mortgage on the basis of the contract. Typically, the contract will need to be three to six months, with at least four weeks remaining. Most lenders require one year’s contract experience, but it is possible to secure a mortgage with less.

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