According to the Office for National Statistics, there were more than 5 million self-employed people in the UK by the end of 2019. This represented 15.3% of total UK employment - a notable increase from 3.2 million in 2000. Then came the coronavirus. While it is likely the rates of self-employment would have continued to grow, the pandemic halted the trend with people unwilling to expose themselves to further risk in an already volatile economy.
Frustrations for self-employed buyers
While the sector may not have experienced the growth previously predicted, self-employed people continue to make up a significant part of the UK workforce. It is therefore surprising that they still encounter a number of challenges when endeavouring to apply for a mortgage. Many lenders lack the experience or bandwidth to deal with self-employed applicants’ irregular or non-traditional income structures.
Adam Kasamun is the Associate Director at LDN Finance. Kasamun explains that the firm receives a lot of self-employed inquiries as such applicants naturally need more advice due to the complex nature of their scenario. Kasamun says “If you’re a first-time buyer with no debt, no dependents and full-time employment, the process of obtaining a mortgage can present fewer issues, and any that do arise are usually more straightforward to explain to a lender. However, self-employed applicants have a number of additional concerns. Will a lender consider them if they have gaps in their income history? How long have they been self-employed? Age restrictions are also a concern. Many people undertake self-employment in the middle of their career. Will this prevent them acquiring a longer-term mortgage?”
There is a popular misconception about how hard it is for self-employed applicants to get a mortgage at all. Kasamum states that this is nonsense. However, the myth pervades and many applicants worry they will be automatically rejected with no consideration into their unique set of circumstances.
Attributes of a successful lender
One of Kasamun’s biggest concerns is the lack of consistency shown by lenders. He explains that when there are gaps in a client’s income history, or the income has been received in irregular instalments, this can sometimes lead to issues later down the application process. Most frustratingly, applications with similar circumstances can be regarded differently by separate underwriters in the same firm.
Kasamun believes lending criteria needs to be clear, even if it is restrictive. Successful lenders need to be available to talk through a client’s individual cases and take time to understand any anomalies in their financial histories. When the aftershock of the pandemic wears off, it is likely the self-employed community will continue to grow as before and the ways in which they are paid will develop in complexity. This should not be a barrier to lending.
Clarity and flexibility
At Harpenden, we believe in assessing each application on its individual merits. In the current climate, more than ever, we understand that buyers’ financial circumstances are evolving and this should be reflected in the approach of the lender. Our underwriters manually underwrite each application and look at a holistic picture of applicants’ unique financial scenarios and income patterns, in order to gain an accurate risk profile.
It is our aim to enter into a dialogue with clients and brokers to understand the important detail which may not be instantly revealed in an application. We think the future of lending will be to enter into a deeper level of analysis to get to the critical facts which will enable an informed decision. This will give brokers and clients the confidence to know they have had an expert working for them to look for solutions rather than assess an application against fixed criteria.
Craig Middleton,
Mortgage Sales & Distribution Manager, Harpenden Building Society