77% of Self-Employed Workers Concerned About Mortgage Eligibility

As mainstream lenders continue to tighten their lending practices, millions of prospective borrowers are finding themselves excluded almost entirely from consideration. According to a new study conducted by Pepper Money, more than three-quarters of self-employed workers now fear they will be unable to qualify for a mortgage.

Of the 6,000 people surveyed, 77% said that self-employed status can make it difficult or impossible to obtain mortgage approval. According to Pepper Money, the issue lies in the fact that most mainstream lenders expect to see three continuous years of profitability and financial stability when processing mortgage applications from self-employed workers.

Given how the vast majority of self-employed workers were adversely affected by COVID-19 restrictions, comparatively few are able to provide such verification of consistent financial performance.

Even though self-employed workers have made significantly more money this year than in the past two years, they are still finding themselves counted out of the running by many mainstream lenders.

The study also found that 20% of self-employed people say that their businesses made more than 10% more profit in the last year than the previous two years.

Seeking support beyond the high street

Speaking on behalf of Pepper Money, sales director Paul Adams advised those who may struggle to qualify for conventional products to consider the options available beyond mainstream high-street banks.

“The self-employed play a vital role in the country’s economy, and the respondents to the survey are largely correct in that it can sometimes be more difficult to secure a mortgage as a self-employed person, but it doesn’t have to be that way,” he said.

“There are many lenders that specialise in lending to self-employed customers, with criteria and processes that are designed to meet the particular circumstances of self-employment, including the ability to lend on the most recent year’s figures, which can make an important difference in helping the self-employed achieve the loan size they deserve.”

Mr. Adams also said that the benefits of specialist lending are by no means restricted exclusively to self-employed individuals.

“It’s not just the self-employed who can benefit from this specialist approach,” he added.

“Our research found a quarter of all workers earn variable income, either from overtime or bonuses, and the ability to consider this additional income is often an important factor in helping them achieve the mortgage they deserve.”

More competitive mortgage rates to come?

Looking at the bigger picture, confidence is growing among analysts that a gradual fall in average mortgage rates will creep into the equation over the next 12 months. Speaking on behalf of Octane Capital, chief executive Jonathan Samuels said that the average mortgage payer could see a reduction in their monthly repayments of as much as £188 by this time next year.

“Opting for a variable-rate mortgage will always be a gamble, as it leaves you susceptible to an immediate change in the cost of your mortgage repayments depending on the base rate set by the Bank of England,” he said.

“For many homebuyers, this gamble has largely paid off in recent years, with interest rates remaining at extreme lows for a prolonged period. However, so far in 2022, the cost of a variable-rate mortgage has continued to climb in line with interest rates, and last week we saw the largest single jump in over 30 years.”

“This will add a considerable amount to the monthly repayment of those opting for, or already on, a variable rate, and given the backdrop of the current cost of living crisis, it really couldn’t have come at a worse time.” “The good news is that we do expect the economy to settle to some extent in 2023, and while we don’t believe we will see a return to the record levels of affordability enjoyed previously, the monthly cost of repaying a mortgage should drop below the levels currently being seen across the market.”