06 August 2022

According to The Mortgage Lender's new Exploring Adverse Credit report, nearly a quarter (23%) of self-employed individuals have had their mortgage application denied in the past compared to just 12% of employed workers.

The study found that self-employed borrowers are typically seen as riskier investments by lenders and are more likely to be denied a loan than employees.

  • Self-employed individuals struggle twice as much to get a mortgage than those that are employed

  • 19% of self-employed individuals said that having a weak credit score deterred them from applying for a mortgage

  • With around 4.23 million self-employed people in the UK today, lenders must adapt and be open to offering mortgages to those with more complex incomes

Self-employed applicants are frequently subjected to stricter affordability assessments than employed applicants, primarily because they are thought to have more irregular or complex incomes and are therefore viewed as riskier by lenders. This can make the mortgage process more difficult, with the survey finding that of those who have ever tried to get a mortgage, 19% of self-employed applicants had mixed results as to whether their application was accepted or denied, compared to only 11% of employed individuals.

This is a problem that must be solved. Although the number of self-employed people in the UK is lower today than it was at the start of the pandemic, in the pre-Covid era, the number of people choosing to work for themselves had been steadily increasing since the early 2000s. While some self-employed people can also be high earning, income is still considered complex, making it difficult for them to get a loan to buy or re-mortgage a property.

Despite taking steps to make themselves a more appealing mortgage applicant, such as having a high credit score, self-employed people are more easily discouraged from getting a mortgage or do not see the benefits of accessing loans because of their employment status. In fact, fewer than two in five (38%) agreed that the strength of their credit score enabled them to obtain better loans and interest rates, compared to nearly half (48%) of employed people.

With a growing number of people becoming self-employed, lenders must adapt and be open to offering mortgages to those with more complex incomes.

The Mortgage Lender recently announced a new residential product range designed to support the UK’s self-employed. The RL0 product range rates start at 3.29%. This category is available across purchase and remortgage ranges and caters to those who, because of their employment circumstances, may struggle to access finance on the high street. 

Peter Beaumont, CEO at The Mortgage Lender said: “It is not uncommon in the UK to be self-employed, and while it may offer those workers more freedom, the major drawback of self-employment is the perception of income inconsistency, and consequently a greater challenge when it comes to borrowing large sums of money. 

“Fortunately, there are steps the self-employed can take to make themselves more attractive to lenders, like increasing their credit score or saving for a bigger deposit to bring down their loan-to-value ratio.

“At the same time, however, the onus must fall on lenders to be more open to working with these enterprising individuals. We are proud to offer a competitively priced product range that caters to those with complex incomes.”

Doug Hall, Director at 3mc said “Different lenders have different approaches when considering the elements of income which can be utilised when calculating overall affordability. The report highlights that it has never been more important for customers to seek mortgage advice from mortgage professionals”.

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Please note lenders have different minimum criteria requirements and not all customer and property types will qualify for a specific product. For further information contact 3mc (UK) Limited.

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