Craig McKinlay (pictured) is new business director at Kensington Mortgages
Mortgage applications are tough. Even more so for the self-employed. A lack of PAYE, limited trading history, and sporadic or multiple incomes – to name a few barriers – are some of the reasons why a rejection may happen.
It’s well known that high-street lenders favour vanilla borrowers over the self-employed, yet the latter’s numbers are growing. Earlier this year, self-employed workers reached a record high of 4.93 million – equivalent to 15% of the UK workforce.
Over a third of self-employed workers have been rejected by a high-street lender, according to research by Kensington Mortgages. Additionally, more than two-thirds (68%) felt disadvantaged by their employment status when applying, and over a quarter considered taking on a full-time job to increase their chances of acceptance.
When we know that self-employed workers contributed £275bn to the UK economy last year alone, this doesn’t seem particularly fair.
Working practices have changed. The traditional nine to five may soon become a thing of the past as flexible or remote working continues to rise in popularity.
Although the mainstream mortgage market hasn’t kept up with the pace of change, that doesn’t mean brokers can’t move with the times, and there is a huge opportunity for business growth here. It’s therefore essential that self-employed individuals find brokers who take the time to understand the complexities of their situation thoroughly. To do this, though, the industry needs to help point these borrowers in the right direction first.
Traditionally the perception of self-employed individuals is that they’re riskier customers, which in turn has led to a limit in the number and type of mortgage products available to them. The outdated consensus amongst high-street lenders is that they are high-risk in comparison to any other mortgage applicant. Our research suggests that the opposite is in fact the case.
Data from Kensington Mortgage’s Kensington Affordability Tracker (KAT) has shown that self-employed mortgage borrowers are a safer bet than first-time buyers. The analysis for this year’s second quarter showed the average self-employed mortgage customer in the UK could have taken out a mortgage 29% larger than the original loan borrowed.
The average first-time buyer, meanwhile, could borrow only 19% more – leaving greater room for self-employed individuals to borrow more.
So the reality is, it’s not at all impossible for self-employed to get a mortgage. In fact, they represent a lower risk than their full-time employed counterparts. If this is the case, why don’t lenders better reward this cohort rather than hinder it?
Typically, high-street lenders require at least two or three years of trading history. As such, self-employed individuals face unavoidable setbacks from the outset if their business has only recently been set up. In comparison, specialist lenders have the resources and time to deal with these cases.
The way people live and work have changed enormously, and it’s about time the market catches up to better support the self-employed. There’s an evident lack of awareness amongst this group of the alternative mortgage solutions available to them – but that isn’t their responsibility.
Self-employed borrowers are a responsible and reliable cohort of individuals. Instead, it’s up to brokers and specialist lenders to help. Ultimately, we need to dispel the myth that self-employed borrowers are synonymous with risk.