A third of self-employed workers deem themselves ‘unworthy’ of getting a mortgage and have resigned themselves to being turned down before even trying.
That’s according to a study by a specialist mortgage lender which is concerned the self-employed are actually selling themselves short when it comes to their aspirations of homeownership.
Indeed, the lender, Together, revealed one in five who applied were turned down because they had insufficient proof of future earnings.
But even those who hadn’t yet applied for a mortgage were not pursuing their dreams of homeownership because they were worried about strict rules on proof of earnings from high street lenders.
The problem arises from the fact self-employed workers do not have an employer to vouch for their wage. This means they need to provide lots more evidence of income than other borrowers.
Together said that while each lender would have its own rules on what’s acceptable in terms of how much proof is required, having a lack of recent tax returns – for example – could ‘tip the scales’ against a self-employed applicant.
How specialist lenders can help
Self-employed workers currently make up around 15% of the workforce, which is the equivalent of 4.8 million people.
Together said specialist lenders can often take a more understanding view of self-employed borrowers because they have the skills and capability to deal with their applications.
The problem is, the survey also found, nearly half of self-employed workers don’t realise there are such providers who can help.
Pete Ball, personal finance CEO at Together, said: “The way people live and work has changed enormously over the past few years, and it doesn’t make sense for the mortgage market effectively to lock out such a large group as the self-employed simply because of the way they earn a living.”
He called on lenders to invest time and develop experience in understanding applicants’ circumstances in order to be able to help them.
Ball added: “Providers have, quite rightly, to ensure that mortgages are affordable for borrowers, but that should not be done at the expense of making it harder for the self-employed. There are signs of improvement across the market but greater flexibility is needed.”
Reasons for rejection
A fifth of self-employed borrowers were turned down because they did not have enough proof of future earnings.
Other reasons they were rejected by high street lenders included not having enough recent tax returns, irregular or insufficient income, and the mortgage request being too large.
Reasons self-employed worker were turned down (source: Together)
| Reasons cited by lender for application rejection | Total (%) |
| Mortgage amount too large | 25% |
| Lack of recent tax returns | 25% |
| Irregular / insufficient income | 25% |
| Insufficient proof of future earnings | 20% |
| Poor credit history | 15% |
| Too much existing debt | 15% |
| Not matching the lender’s profile | 15% |
| Failure to supply SA302 form | 15% |
| Payday loans | 10% |
| Failure to supply two years of recent accounts | 10% |
| Lived in the UK for less than three years | 10% |
| Too many mortgage/credit applications | 10% |
| Employment status | 10% |
| Irregular / insufficient dividends | 5% |
