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Self-employed are doing themselves out of home ownership.

29 Jul 2019 | 5 min

Self-employed people are selling themselves short when it comes to their aspirations of property ownership, according to new research.

A survey of those who work for themselves revealed more than a third of would-be homeowners have already judged themselves unworthy of a mortgage.*

The national study showed 36 per cent of self-employed people who wanted to buy a home of their own decided against applying in the past five years because they expected to be turned down.

According to the research, self-employed borrowers – who account for 15 per cent of the UK workforce and the equivalent of 4.8 million people – 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.

They have grounds for caution – our research shows around 21 per cent of self-employed borrowers who have applied have been rejected, with a fifth of them being turned down more than four times.

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, our personal finance CEO, 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.”

The research shows 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.

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.

Each lender will have its own rules on what is acceptable, but something like a lack of recent tax returns could tip the scales against a self-employed worker when it comes to being accepted for a mortgage on the High Street.

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.

The table below shows the main reasons self-employed worker are turned down.

Reasons cited by lender for application rejection Total (%)
Mortgage amount too large 25%
Lack of recent tax returns 25%
Irregular / insufficient income 25%
Insufficient proof of future earnings 20%
Poor credit history 15%
Too much existing debt 15%
Not matching the lender’s profile 15%
Failure to supply SA302 form 15%
Payday loans 10%
Failure to supply two years of recent accounts 10%
Lived in the UK for less than three years 10%
Too many mortgage/credit applications 10%
Employment status 10%
Irregular / insufficient dividends 5%

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