The struggles of the self-employed mortgage market

  • 16/03/2017
  • 0
The struggles of the self-employed mortgage market
Self-employed people have come under great scrutiny in the last week thanks to the now-reversed Budget plan to increase their National Insurance Contributions (NICs).

This has prompted increased assessment of how easily they can access the mortgage market.

Roughly 15% of the working population are self-employed and they face a different set of challenges when seeking to buy a property.

“The 4.6 million self-employed people in the UK accept that the nature of their employment precludes them from receiving sick pay and generally results in an exclusion to the redundancy components of certain income protection policies,” says Contractor Financials business development director Luke Somerset.

“The current 2% differential in employed and self-employed NICs hardly makes up for the income risk which these workers accept, but it helps.

“It allows the worker to make provisions, accepting that the day they’re unable to work is the day they stop getting paid, ensuring that savings are in place to ensure that their mortgage is paid no matter what happens to their income,” he adds.


One giant leap

While this lower rate of NICs can help, one of the biggest challenges for self-employed is taking their first step onto the housing ladder.

According to research from Aldermore, two thirds (62%) of self-employed people do not know how they will manage to buy their first home and a third (32%) of recent first-time buyers said they had to give up being self-employed to get a mortgage.

One in eight (12%) added that saving for a deposit was so hard they had to take on a second job to earn extra money.

Clearly these levels of affordability are a concern within the first-time buyer market, but the self-employed are particularly hard hit.

Aldermore commercial director for mortgages Charles McDowell highlights the importance of first-time buyers and the changing economy.

“Low levels of confidence amongst these groups will have ramifications further up the housing chain so it’s imperative that more is done to support both segments of our society, particularly with levels of self-employment continuing to rise in the UK,” he says.


Closing the tax gap

While the threat of increasing NICs has at least been removed for this parliamentary term, it is highly likely the issue will raise its head again in 2020 as there is wide political acceptance that the gap between self-employed and directly-employed tax needs to be closed.

Any future changes could impact lenders’ processes, acknowledges Precise Mortgages managing director Alan Cleary.

“Many lenders already struggle with the interpretation of the self-employed financial accounts and this change would be likely to make underwriting the loan slightly trickier.

“Fortunately, there are a number of mortgage lenders that specialise in lending to the self-employed so their choice of lender is much greater than it was a few years ago,” he says.


Economic evolution

Indeed, once self-employed borrowers have scraped together a suitable deposit, it appears the landscape to find a lender has improved considerably, resulting in a much healthier environment than just a few years ago.

Lenders, it appears, are more attuned to the changing economy and evolution of work practices, making finding a loan far easier.

“Those with a long working history, and accounts to support it, have been, and continue to be, fine,” explains SPF Private Clients chief executive Mark Harris.

“Most noticeable has been the increasing willingness of lenders to accept those who perhaps have not been self-employed for long, or contractors who have multiple contracts and/or operate under short-term contracts.

“Furthermore, lenders are willing to look at the most recent year’s accounts or accept those with only one year’s accounts.

“There is no single brush to use here, so depending on how long you’ve been your own boss, how you structure your income, or retain it in the business, there should be a lender out there,” he concludes.

There are 0 Comment(s)

You may also be interested in

Read previous post:
Yorkshire BS drops two-year fix below 1% to direct-only borrowers

Yorkshire Building Society is launching its lowest ever fixed-rate product – a 0.99% two-year mortgage, but is not extending the...