Lender suggests many working for themselves fear they won’t be approved

Brokers need to challenge a ‘deep-seated belief’ among those who are self-employed that they are unable to secure a mortgage, specialist The Mortgage Lender has urged.

Self-employment in the UK has fallen since the pandemic, according to the Office for National Statistics, though around 4.7 million people in England and Wales worked for themselves in 2021, according to that year’s Census – so, there are clearly still many people who earn under their own steam and want to buy their own home.

A survey by The Mortgage Lender (TML) of 2,000 so-called ‘non-traditional’ workers – including the self-employed, freelancers and gig economy workers – found that 22% have never tried to get a mortgage.

It found that 25% of non-PAYE workers have never applied due to a fear of rejection. One in 10 considered the process too daunting to apply or didn’t know enough about it, while 8% didn’t know who to speak to about getting one. A further 8% said their business was under two-years-old and therefore wouldn’t have the right documentation to be approved.

How can brokers support the self-employed? 

TML’s director of distribution, Sara Palmer (pictured) believes that brokers have a role to play in changing the perceptions of those who are self-employed.

“It starts with challenging the deep-seated belief that being self-employed means you can’t secure a mortgage,” Palmer told Mortgage Introducer. “Brokers need to reach out to more of these people so they can see there is help out there and there are avenues to home ownership, whether this be through showcasing success stories, or by identifying the key hurdles that self-employed people think they’ll fall at and the solutions available.

“I was surprised by the high percentage of people who think they won’t be approved for a mortgage and therefore don’t even apply. It reveals just how much still needs to be done to support self-employed individuals, and how this needs to be an area of focus when reviewing services and product offerings.”

Palmer said challenges persist with people’s understanding of the specialist lending market and the fact that there are, more often than not, suitable solutions available.

“There needs to be more initiatives and tailored communications that are directly focused on this group,” she reasoned, “especially as this is an opportunity to help both the end customers and support brokers grow their businesses as they reach those who haven’t come forward.”

While affordability continues to be a major challenge for those looking to get on the property ladder, Palmer said, she is optimistic about the market.

“As rates continue to reduce, we are seeing more confidence and positive sentiment,” she observed. “The market is busy with transactions and lending is similarly increasing, indicating that house prices will rise and are on track to be 2.5% higher over the full year. It will be interesting to see if the upcoming Budget will address these issues.”

How much do home-owning ambitions affect people’s career choices?

A separate study from Nottingham Building Society suggests that one in four working people in the UK – equating to almost nine million people – have sacrificed the career they really want because they don’t think they will be accepted for a mortgage without a traditional nine-to-five job. 

The building society surveyed 2,000 UK adults and discovered that 26% of people – rising to 39% of people with more than one job – say they have either abandoned or put on hold plans to pursue their dream career because they are worried it would affect their ability to own a home.  

Dream careers which respondents have apparently abandoned include everything from concert violinist to astronaut and midwife to watch maker, but the most common (22%) are creative jobs. 

Furthermore, more than one in three (36%) say they would love to start their own business, but are worried about the consequences it would have on their chances of getting a mortgage in future. 

Just over one in five (21%) people have already experienced problems getting a mortgage because of their career choice, rising to almost one in three (32%) of people who currently have more than one job.  Some 39% of this group said they had to ‘jump through extra hoops’ to demonstrate they could afford the mortgage, and 17% of freelancers and sole traders said were still turned down for a mortgage.

Sue Hayes, chief executive of Nottingham Building Society, said the lender was committed to embracing financial diversity and supporting the millions of people who are sometimes overlooked by the conventional mortgage market.

“Non-traditional working patterns are now becoming the norm, but this is causing issues for millions of people who understandably want to secure a mortgage and own their own home, but can’t,” commented Hayes. “More worryingly, our research shows the perception of how lenders approach these cases is actually stopping people from pursuing the careers they really want because they fear the negative impact it will have on their other dream – becoming a homeowner.”

By Simon Meadows 09 Oct 2024