Self-employed workers reveal difficulty to secure a mortgage

Almost two-thirds of self-employed individuals believe it is more difficult for them to secure a mortgage, new research from Foundation Home Loans has found.

According to the specialist lender, three out of five self-employed workers 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, with each asked to give their views on their current housing arrangements, their ability to secure mortgage and other finance, potential obstacles they must overcome, and how their financial situation and credit score might have changed because of the pandemic.

The majority of the self-employed respondents (59%) said it takes longer to secure a mortgage because of their self-employed status, while one in two (51%) said there is a restricted choice of lenders available to them. 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 indicated there may be a disconnect between perception and reality when it comes to mortgage accessibility. Foundation found that just 14% of self-employed individuals said they had been declined a mortgage as a result of their self-employment.

Foundation commercial director, George Gee, commented: “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.”

The findings also suggested that 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, with 44% compared to 31%. Foundation suggested this shows an “opportunity” for advisers with the self-employed, especially given the perception that they encounter greater difficulties in securing a mortgage.

Gee added: “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.

“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.”

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