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Self-employed treated with ‘more caution’ by lenders, brokers say

  • 14/07/2022
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Self-employed borrowers are treated as higher risk by mortgage lenders but there is little justification, according to mortgage brokers.


During Covid a number of lenders amended criteria for borrowers working for themselves.

Some of these policies have been relaxed, but self-employed borrowers often find it more difficult to get the level of borrowing they require, or run into more hiccups with applications.

Sebastian Murphy, group director at JLM Mortgage Services, said that some mortgage lenders are still running a “two-tier system” with the self-employed being “treated with much more caution”.

Part of the problem is that “lenders are constantly looking backwards at what happened in previous downturns and how the self-employed were affected”.

He added that many big lenders have “draconian affordability models” with high street underwriters that struggle to assess accounts.

Self-employed cases end up being placed with building societies or more specialist lenders, Murphy added.

But rates on these products are not as competitive as mainstream lenders.

Self-employed borrowers are twice as likely than PAYE applicants to be rejected by lenders, according to recent research.

Rhys Schofield, managing director at Peak Money, agrees the treatment of self-employed by lenders is sometimes “unfair”.

He said: “The problem arises when you get into the grey area of an underwriters’ judgment call on the health of the business.

“Take businesses who took a Covid grant, as an example. It’s very harsh to penalise a business owner that did this when they couldn’t give two hoots on someone who may have spent lockdown twiddling their thumbs on furlough. It strikes me as very unfair.”

Imran Hussain, director at Harmony Financial Services, said being able to prove the income of the self-employed remains a challenge.

This is often because tax calculations are out of step with earnings.

Graham Cox, director at Self Employed Mortgage Hub, said: “The main hurdle for a self-employed borrower is having enough provable earnings and or trading history.

“Many directors retain profits in the company to minimise their tax bill which unfortunately can also minimise how much they can borrow with those lenders who only work off salary and dividends.

“Fortunately, there are plenty of lenders who’ll consider salary and net profit.”

Some lenders will also work off just one year of accounts, which is a move welcomed by brokers.

Lewis Shaw, founder of Shaw Financial Services, believes self-employed borrowers have access to the same mortgages as everyone else .

He added: “The reason so many get rejected is often down to poor broking rather than any inherent issue with lenders.

“Ensuring the right lender is selected the first time and packaging correctly is of paramount importance, as is understand lending criteria.”

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