Self-employed individuals are twice as likely to be rejected for a mortgage, according to a new report from The Mortgage Lender (TML).
The report, entitled Exploring Adverse Credit, reveals that 23% of self-employed individuals have had their mortgage application denied in the past compared to just 12% of employed workers.
Self-employed applicants are often treated with stricter affordability assessments to those who are employed, mainly because they are considered to have a more irregular or complex incomes and are therefore viewed as riskier to lenders. The survey found that of those who have ever tried to get a mortgage, 19% of self-employed applicants have had mixed results of whether their application was accepted or denied, compared to only 11% of employed individuals who said the same.
There are around 4.2 million self-employed people in the UK, and while some self-employed people can also be high earning, income is still deemed complex, which can make it challenging for this group to access finance to either buy or re-mortgage a property.
However, TMS said that even taking steps to make themselves a more appealing mortgage applicant, such as a strong credit score, self-employed individuals are more easily deterred from getting a mortgage or do not see the benefits of accessing loans due to their employment status. In fact, just 38% agreed that the strength of their credit score allowed them to access better loans and interest rates, compared to 48% of employed people who said the same.
TML said that with a growing number of people becoming self-employed, lenders must adapt and be open to offering mortgages to those with more complex incomes.
Peter Beaumont, TML’s CEO, said: “There are around 4.2 million self-employed people in the UK, and it is typical for that number to grow when coming out of a recession, or in this case a pandemic also. While it may offer those workers more freedom, the major drawback of self-employment is the perception of income inconsistency, and consequently a greater challenge when it comes to borrowing large sums of money.
“Fortunately, there are steps the self-employed can take to make themselves more attractive to lenders, like increasing their credit score, or saving for a bigger deposit to bring down their loan-to-value ratio.
“At the same time, however, the onus must fall on lenders to be more open to working with these enterprising individuals. We are proud to offer a competitively priced product range that caters to those with complex incomes.”