Mortgage blog: Self-employed borrowers finding mortgage deals harder to come by

Thousands of people in the UK have become self-employed in the last few years. There are now a record 4.1 million self-employed people in the UK - 14.2% of the workforce - and 60% of those who have become self-employed since 2008 are women.

The Guardian reports that "some think it is an entrepreneurial boom" while others, including John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development, believes the trend is more to do with the struggling economy and increasing redundancies.

Despite an increase in the number of self-employed people in the UK, this sector has been one of the hardest hit by changes to mortgage lending criteria. It has rarely been harder for self-employed borrowers to secure a new mortgage.

Experts urge self employed mortgage applicants to speak to a mortgage broker

"Obtaining a mortgage if you are self-employed is unquestionably harder than it was five years ago," mortgage expert Drew Wotherspoon told the Daily Mail recently. There are two main reasons for this. Firstly, the scrapping of ‘self-certification' mortgages - where you did not have to prove your income - has had an enormous effect on self-employed clients. Almost one in four residential home loans was agreed on a ‘self-cert' basis five years ago, while now self-employed clients have to prove their income through tax assessments or accounts.

And, of course, if you are self-employed, you will also try to legitimately reduce your income as much as possible by claiming all the tax expenses that you are entitled to. This means that your income is lower, meaning that your borrowing potential is also lower.
Secondly, with so many people becoming newly self-employed, many simply do not have two or three years' accounts to provide to a mortgage underwriter.

Using a mortgage broker can help you to find a deal. The Daily Mail advises that "lenders' criteria can differ, so if you work for yourself it's advisable to have your accounts completed by an accountant and then consult a mortgage broker to find out which lenders are likely to look upon your application favourably."

Keith Osborne of whathouse.co.uk says: "The structure of your self-employment can also make it difficult to obtain a home loan through a mainstream lender. For example, if you choose to take a small salary and larger dividends then this may affect your borrowing potential. Or, you may retain profits within your limited company for tax reasons. Getting the advice of a mortgage broker is increasingly important if you work for yourself."

Mr Wotherspoon concludes: "The key is finding the right lenders to speak to. Many computer-driven high street lenders are not the right place; rather, self-employed borrowers should speak to lenders who operate traditional underwriting models, with a human making the decision."

Click here to find out more about how whathouse.co.uk can help you find the right mortgage.