SE applicants, who make up around 4.2m British workers, are often treated with stricter affordability assessments to those who are employed due to their irregular or complex incomes, making them appear riskier to most lenders even when they are high earners.
The survey found that 19 per cent of self-employed applicants have had mixed results of whether their application was accepted or denied, compared to only 11 per cent of employed individuals who said the same.
Nearly a quarter, 23 per cent, of self-employed individuals have had their mortgage application denied in the past compared to just 12 per cent of employed workers.
Many, 38 per cent, are also put off applying for a mortgage or remortgaging due to their “weak” credit score as a result of the inconsistent earnings, denying them access to better loans and interest rates. This is compared to nearly half, 48 per cent, of employed people who said the same.
Peter Beaumont (pictured), CEO at The Mortgage Lender said: “It is typical for the number of self-employed to grow when coming out of a recession, or in this case a pandemic also.
“While it may offer those workers more freedom, the major drawback of self-employment is the perception of income inconsistency, and consequently a greater challenge when it comes to borrowing large sums of money.”
A lack of confidence in the system
TML reports that even SEs taking steps to make themselves a more appealing mortgage applicant, such as a strong credit score, many do not see the benefits of accessing loans due to their employment status.
Although the number of SEs is smaller than it was at the start of the pandemic, the number of people choosing to work for themselves had been steadily rising since the early 2000s.
The study concludes that with the growing number of people becoming self-employed, lenders must adapt and be open to offering mortgages to those with more complex incomes.
Beaumont added: “Fortunately, there are steps the self-employed can take to make themselves more attractive to lenders, like increasing their credit score, or saving for a bigger deposit to bring down their loan-to-value ratio.
“At the same time, however, the onus must fall on lenders to be more open to working with these enterprising individuals.”