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Top tips for self-employed borrowers to get a mortgage

Christina Hoghton
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Christina Hoghton

Over a third of self-employed renters worry they won’t ever buy a home, but they can take steps to improve their mortgage eligibility

Self-employed renters think they’ll struggle to get a mortgage and buy a home, according to research from Aldermore.

Over a third (37%) of those who rent and work for themselves don’t think they’ll ever be able to buy their own home.

A further 28% think it will take them up to 10 years or longer to purchase a property.

Motivated to buy

Despite the barriers, many are keen to buy a home of their own. 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.

In fact, 13% are even reconsidering being self-employed to improve their chances of getting on the housing ladder.

Mortgage rejection

Many self-employed renters have already been rejected for a mortgage. They said the number one reason 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. And they believe the main problem is a lack of understanding of their income.

Only a third (29%) of self employed homeowners thought that 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.

Jon Cooper, head of mortgage distribution at 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 has published six handy hints and tips for the self-employed to boost their chances of getting a mortgage application accepted:

Get mortgage ready

1. 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.

2. Evidence two or 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.

3. 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.

4. 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.

5. 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.

6. 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.