The latest Pepper Money study highlights key challenges faced by self-employed individuals when securing mortgages.
- Nearly three-quarters of business owners find self-employment complicates mortgage access, signalling widespread concern.
- Despite these challenges, the self-employed are showing strong financial performance with notable profit increases.
- Traditional lender approaches often impede self-employed individuals, but progressive solutions are emerging.
- Pepper Money and other lenders are adapting criteria to better serve the self-employed, enhancing their mortgage opportunities.
The Pepper Money Specialist Lending Study reveals that a significant 72% of self-employed individuals perceive self-employment as a hurdle in obtaining a mortgage. Among these individuals, 46% believe that their employment status makes the mortgage process considerably tougher. This reflects a broad-based concern among the self-employed community regarding mortgage procurement.
Despite these perceived obstacles, recent financial trends among the self-employed are encouraging. The study notes that 29% of self-employed individuals have witnessed a profit increase of at least 10% over the past year compared to the previous two years, with 15% seeing a rise of at least 20%. Such trends signify a robust financial standing among many self-employed.
Ryan Brailsford of Pepper Money identifies proving affordability as a primary barrier. Lenders typically consider an average of the last three years’ accounts when evaluating mortgages for the self-employed. However, about one-third of business owners have noted a 10% income rise over the past year, indicating that traditional methods may not reflect the current financial health of applicants.
Limited company directors face additional difficulties. Many choose to retain some net profits within their businesses, reducing personal tax liabilities. Yet, this decision can limit their borrowing potential due to how lenders calculate affordability. Such methods often do not account for retained earnings, potentially misrepresenting an individual’s financial capabilities.
To address these challenges, Pepper Money and other forward-thinking lenders are evolving their mortgage criteria. By considering only one year’s accounts or including retained net profits in the calculation, lenders can offer more accurate assessments of self-employed applicants’ affordability. This shift provides brokers with the tools to assist self-employed individuals in accessing suitable mortgage products.
Adam Hinder from Simply Lending mentions a shift in lender attitudes towards a more nuanced understanding of self-employment income. He points out that while traditional underwriting has been rigid, lenders like Pepper Money now adopt criteria that reflect the latest year’s accounts or consider retained business profits. This progressive approach is opening doors for the self-employed, allowing brokers to better serve their clientele.
Progressive lending practices are enhancing mortgage accessibility for self-employed individuals, fostering optimism in the housing market.
