Would-be homeowners who are self-employed might find it challenging to get a mortgage, but they could be a less risky prospect to lenders than first-time buyers.
That’s according to a study by specialist lender Kensington Mortgages which looked at the finances and spending habits of people who had made successful mortgage applications.
It discovered self-employed borrowers actually behaved far more conservatively than first-time buyers.
And in fact, based on their spending habits, successful self-employed applicants could have borrowed a significant amount more than they did.
The Kensington Affordability Tracker identified the difference between the amount a homeowner borrowed on their mortgage and compared this to the maximum amount a lender was willing to lend to that customer.
Based on the analysis of mortgage approvals from banks, building societies and other lenders, it would appear the self-employed applicants could, on average, have taken out a mortgage 29% larger than the one they had borrowed.
This compared to first-time buyers who could have typically borrowed 19% more.
Confidence
Borrowers across the board were being more confident in their borrowing habits despite the Brexit uncertainty that has prevailed this year, Kensington Mortgages found.
The tracker results showed homeowners were taking out larger loans between April and June than they were at the beginning of the year.
Mark Arnold, chief executive of Kensington Mortgages, said slower house price growth was providing opportunities to get onto the housing ladder.
But, it was a different story for the self-employed. Arnold added: “What’s interesting is that self-employed borrowers are leaning more towards the cautious side, as they have plenty of scope to borrow more if desired compared to first-time buyers.”
Recent research has shown how many self-employed people feel discriminated against when it comes to getting a mortgage with many reluctant to get onto the ladder because they feel they have to work harder to prove their affordability. Many have been put off buying their own home entirely.
Regional lending
Kensington Mortgages also revealed households in the south east commuter belt were borrowing the most in the country, with the average borrower only being able to borrow 8% more than the initial amount secured.
Broken down by group, first-time buyers in the same region were right at their borrowing limit with no room to borrow more. In comparison, self-employed borrowers had some scope to borrow 8% more.
By contrast, borrowers in the north have the most financial headroom with the average homeowner able to borrow 52% more than the initial sum borrowed.
