- A further quarter (28%) think it will take up to ten years or longer to purchase a property under current circumstances
- Over one in ten (13%) are reconsidering being self-employed to improve their chances of getting on the housing ladder
- Self employed mortgage applicants say the number one reason they were rejected for a mortgage was due to them being self-employed or a contractor
- Over half (56%) think mortgage lenders do not do enough to support the self-employed
New research from Aldermore bank1 reveals self employed workers in the UK are pessimistic about their home buying chances, as the pandemic has exacerbated difficulties felt by this group in getting a foot on the housing ladder.
Rising obstacles for self employed renters to realise home owning dreams
The challenges self employed renters are facing in buying their first home has become more pressing as the pandemic experience has energised many to want to buy a home. One in five (20%) self employed renters say they are more motivated to buy due to the lockdown experience and one quarter (25%) are currently actively saving for a deposit.
However, many now believe that conditions for buying as a self employed worker have worsened. Over a quarter (28%) say saving up for a deposit is more of a challenge now due to the financial impact of the pandemic and one in five (18%) have delayed their home buying timeline due to the pandemic.
Despite over a quarter (27%) of self employed renters now seeking to improve their credit to boost their home buying chances, 14% say their credit score has been negatively impacted due to the pandemic. These increased challenges have meant over a third (36%) of self employed renters say they feel buying a home is unobtainable for them right now.
Self employed finding the home buying process a struggle
While the housing market has rebounded strongly, owing to pent-up demand and Government initiatives such as the Stamp Duty holiday and Mortgage Guarantee Scheme, our research suggests the self employed may be over-looked. While four in five (78%) self employed Brits believe owning a home is an important life step, nearly half (44%) think the home buying process is confusing.
Furthermore, over half (56%) think mortgage lenders do not do enough to support the self-employed. With only 14% of self employed workers having consistent income month to month, many feel high street lenders do not give them a fair hearing when going through the application process. The number one reason for a mortgage application rejection for the self employed was being self-employed, with a third (32%) citing this as a reason for a rejection.
Only a third (29%) of self employed home owners believe mortgage lenders fully understood their earning capabilities when they applied, with half (50%) thinking their lender only understood to a degree and nearly a quarter (21%) say their mortgage lender did not understand their earning capabilities at all. This has led to two-thirds (64%) of the self employed believing mortgage lenders treat self employed people worse than those who are employed with a regular salary.
Jon Cooper, head of mortgage distribution, Aldermore said:
“The UK is an entrepreneurial nation, and the growing self employed workforce is integral to our economy, so it is disappointing to see persistent barriers for them when seeking to secure a mortgage, which appears to have been exacerbated by the pandemic.
“The self employed need not despair, however, as the growth of specialist lenders has opened up an increasing number of options that can provide pathways to home ownership. Our research shows 52% of the self employed workers in the UK have seasonal or extremely variable income streams month to month, which may not fit the tick-box approach of many high street lenders, but specialist lenders can dig into the detail to understand complicated income streams ensuring the self employed have opportunities to get on the housing ladder.”
Aldermore’s top tips for the self-employed:
- Consider using a broker: The home buying journey can be a complicated journey so having an experienced guide throughout can make all the difference. Brokers have whole-of-market experience so can outline all the options available to fit an applicant’s individual circumstances.
- Evidence two-three years of accounts: Lenders will typically ask to look at two to three years’ worth of accounts, as proof you have a good level of income. Since Covid-19, it is also important to show your business has recovered to pre-pandemic levels to instil confidence in the lender you can meet mortgage repayments.
- Get your accounts in order: You will need to provide documentation to prove your income, which will vary depending on the lender. Making sure you know which documents lenders will ask of you and having this to hand will save time and help speed up the process.
- Evidence a steady stream of work: To prove that you’re a reliable borrower, it’s important to demonstrate a steady stream of work that has been maintained over time. It is equally important to show a strong pipeline of upcoming work to reassure lenders.
- Improve your credit profile: There are many ways to boost your credit profile. Simple steps such as registering on the electoral roll, paying off debts and meeting regular payments will over time make a difference.
- Save a bigger deposit: Having a bigger deposit will better your chances of securing a mortgage and demonstrate you aren’t a risk to lend to. Review your monthly expenditure to see where you can afford to cut back and put towards saving for a deposit and utilise fixed term savings accounts to benefit from a more favourable interest rate.
Notes to editors:
1 Research conducted, on behalf of Aldermore bank, by Opinium in May 2021, with a sample size of 1,000 self-employed adults.
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For further information about Aldermore, please review our Notes to Editors page.
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