The process of securing a mortgage is notably more challenging for the self-employed, according to a Pepper Money study.
- Nearly three-quarters of business owners find that self-employment complicates mortgage procurement.
- A significant portion of self-employed individuals reported increased profits over recent years.
- Many lenders use outdated methods of calculating affordability based on outdated income records.
- Progressive lenders are now considering more current financial data, thus expanding opportunities for self-employed borrowers.
The latest study from Pepper Money highlights the difficulties faced by self-employed individuals in obtaining a mortgage. Nearly three-quarters of business owners, about 72%, express that self-employment complicates this process, with 46% finding it significantly tougher.
Despite these challenges, the self-employed sector is showing positive financial trends. According to the report, 29% of respondents indicated a profit increase of at least 10% in the last year compared to the previous two years. Furthermore, 15% observed an increase of 20% or more over the same period.
Ryan Brailsford from Pepper Money pointed out that one of the main barriers for these individuals is the requirement by many lenders to calculate affordability based on an average of the last three years’ submitted accounts. However, in reality, nearly one-third of business owners have reported significant income increases recently, making this method outdated.
Brailsford also mentioned issues faced by directors of limited companies, who sometimes prefer to retain net profit within their business to manage personal tax liabilities better. While this may be financially prudent, it can negatively impact their borrowing power during mortgage applications, as lenders do not consider the retained earnings.
There is hope, however, as more lenders are taking a forward-thinking approach by using the latest year’s accounts or considering profits retained within businesses. Adam Hinder from Simply Lending supports this shift towards incorporating individual circumstances into lending criteria, thereby broadening the potential for securing mortgages for self-employed people.
Such progressive methods allow brokers to assist more clients in navigating the mortgage landscape successfully. As lenders like Pepper Money adapt, opportunities are increasing for those who work for themselves to achieve the mortgages they seek.
The evolving mortgage market is gradually accommodating the unique needs of self-employed individuals, fostering better financial inclusivity.
