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Self-employed lack confidence to apply for a mortgage

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29/07/2019
Aspiring borrowers who work for themselves are so worried about rejection that they don't go ahead with their mortgage application
Self-employed lack confidence to apply for a mortgage

More than a third of self-employed would-be mortgage applicants (36%) didn’t go ahead because they expected rejection, according to research from Together.

The specialist lender found that self-employed people are selling themselves short when it comes to their aspirations of property ownership.

According to the research, many are being put off before even applying for a mortgage or remortgage as they worry about strict rules on proof of earnings at high street lenders.

The UK’s 4.8 million self-employed do have reason to be concerned, as Together’s research shows around 21 per cent of self-employed borrowers who have applied for a mortgage have been rejected, with a fifth of them being turned down more than four times.

In fact, two-thirds (65 per cent) of self-employed workers have found the process so bruising they have considered switching to the security of a directly employed job to boost their application chances.

Why the rejection?

Self-employed workers often find it more challenging than employees to secure a mortgage because there is no employer to vouch for their wage, so they are required to provide far more evidence of income than other borrowers.

The main reasons for being rejected by high street lenders cited by one in four self-employed borrowers were: a lack of recent tax returns; irregular or insufficient income; and the mortgage requested being too large. One in five (20 per cent) of self-employed borrowers said they were denied a mortgage because they didn’t have enough proof of future earnings.

Pete Ball, personal finance CEO at Together, said: “These findings are understandable, but the fact that so many people are doing themselves out of owning their own home because they expect rejection is very worrying.

“The way people live and work has changed enormously over the past few years, and it doesn’t make sense for the mortgage market effectively to lock out such a large group as the self-employed simply because of the way they earn a living.

“It therefore requires lenders to invest time and develop experience in understanding applicants’ circumstances in order to be able to help them. Providers have, quite rightly, to ensure that mortgages are affordable for borrowers, but that should not be done at the expense of making it harder for the self-employed. There are signs of improvement across the market but greater flexibility is needed.”

Specialist lenders can take a more understanding view and have the skills and capability to deal with such applications, but almost half (47 per cent) of self-employed workers aren’t aware there are providers which can help.

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