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Temporary and self-employed people now make up one-fifth of all UK workers. Recent figures from the Office of National Statistics show that the self-employed now account for 14 per cent of Britain’s workforce with temporary workers making up a further 6 per cent.
Even though there are more self-employed worker than there were a decade ago, lenders have actually made it more difficult for this sector of the workforce to get a large mortgage. Rather than developing products for self-employed applicants, lenders are increasingly using computer-based underwriting which doesn’t take into account a self-employed person’s unique circumstances.
So, if you are self-employed, it could be tricky to find your next mortgage. That is why it is so important to speak to a high net worth (HNW) mortgage broker if you’re self-employed and looking for a home loan. Keep reading to learn more.
Prior to the credit crunch, self-certification mortgages were widely available. This meant that a self-employed borrower didn’t have to prove their income and the Daily Mail reports that almost a quarter of residential mortgages in 2007 were granted on a self-cert basis.
However, five years later and income verification is now required for all mortgage deals. While self-employed borrowers can still get mortgages they need to prove their income with two or three years’ accounts.
Hugh Wade Jones, director of London mortgage broker Enness Private Clients, said: “Self employed clients have been one of the major victims of the credit crunch. With lenders now requiring proof of income, any professional client – even private GPs and surgeons, accountants and barristers – now have to provide accounts to support their earnings.
“With millions of people having taken to self-employment after redundancy or downsizing in the last couple of years, these workers won’t necessarily have the accounts that lenders need to grant a mortgage.”
Another dilemma that self-employed borrowers face is that there is a balance to be drawn between reducing their income as much as possible for tax purposes and maximising their earnings to increase their chances of getting the large mortgage that they need.
Mr wade-jones added: “Self-employed people will typically look to legitimately reduce their earnings where possible. By claiming all the allowable tax expenses they are entitled to they can reduce their profits and therefore their tax liability.
“Of course, this has the knock-on effect that lenders will often agree the mortgage amount based on an applicant’s net earnings. And, the lower the earnings, the lower the potential mortgage.”
With lenders each having their own criteria for self-employed applicants, many experts recommend that these borrowers seek the advice of a high net worth finance specialist. Mortgage brokers know which lenders are more sympathetic to self employed clients and which private banks will be more amenable to lending to wealthy clients who, for example, retain profits in their limited company.
Mr Wade-Jones added: “It is a tough mortgage market for self employed clients and finding the right lender can be a minefield. That’s why we always recommend that self employed borrowers speak to a high net worth mortgage broker first as we have a wide range of lending options suitable for all types of client.”