A significant minority (34%), of self-employed individuals have never applied for a mortgage, according to research by The Mortgage Lender (TML), with the main reason cited is fear they’ll be rejected by the lender.
TML found that 30% of self-employed people who said they’ve never applied for a mortgage explained it was because they didn’t think it would get approved.
In addition, 26% told the specialist lender that they believe it’s more challenging for self-employed people to get a mortgage.
Perceived hurdles
Of the self-employed people who’ve not applied for a mortgage in the past, 36% said it’s because they had not built up their deposit yet, while 17% are waiting for interest rates to come down.
One in 10 admitted they find the process too daunting.
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However, 15% said it was because their business is less than two years old and they don’t have the necessary documentation to prove their income when applying.
TML said this highlights the importance of understanding specialist lenders and the opportunities they provide customers, such as accepting applications from borrowers with just 12 months’ accounts.
Application rejected
Of those self-employed workers who have applied for a mortgage and been rejected, nearly two in five said it was because their income was too volatile.
Over a quarter said the lender calculated that they wouldn’t be able to make the repayments, and a similar number didn’t have the right documents to prove their income.
Over one in 10 said their mortgage rejection was based on missed or late payments, or because they had a default or a county court judgment (CCJ) in the past six years.
Steve Griffiths, chief commercial officer at TML, explained that some lenders, particularly on the high street, “aren’t always equipped to deal with more complex incomes”.
He said: “It’s unfortunate that this is putting off so many self-employed workers from even applying when they could in fact be great candidates for a mortgage. Especially when there are specialist lenders who are well placed to support their property aspirations.”
Mark Harris, chief executive of SPF Private Clients, added: “As long as income can be proven, it shouldn’t make any difference if a client is self-employed or on the payroll when it comes to getting a mortgage.
“However, with some lenders tightening their criteria for self-employed borrowers during the pandemic, those who work for themselves may feel that it is not worth bothering applying for a loan as they won’t be successful or won’t be able to borrow as much as they need.
“This is where a broker can really come into their own, identifying those lenders who will look more favourably on applications from the self-employed.”