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Self-employed could be forced to find a job in order to get a mortgage

Posted 7 April 2017

While our 'gig economy' seems to encourage self-employment, it gets tougher for the self-employed to secure a mortgage on a home...

In recent years it has been tough for self-employed applicants to get a new mortgage, and stricter lending criteria have left many entrepreneurs struggling to prove enough income to secure a home loan. Now, research has found that up to a third of self-employed people believe that they could be forced to get a job in order to get onto the housing ladder.

Research from challenger bank Aldermore has found that self-employed people are pessimistic about their chances of getting a new mortgage. The bank found that nearly two thirds of self-employed people do not know how they will manage to buy their first home, while a third think they may have to get a PAYE job in order to be approved for a mortgage.

Charles McDowell from Aldermore says: “First-time buyers are the driving force of the property market but our research reveals just how hard it is for them to get on the ladder - even more so for those who are self-employed.

“Low levels of confidence amongst these groups will have ramifications further up the housing chain so it’s imperative that more is done to support both segments of our society, particularly with levels of self-employment continuing to rise in the UK.”

The Aldermore research also found that 37% of those who are self-employed want lenders to offer 'better' mortgage products while a further third want lenders to be more flexible on their criteria. 

Getting a mortgage can be tough if you’re self-employed

Many mortgage lenders have strict criteria for self-employed applicants and need qualified accounts for two or even three years. Sole traders have to show two or three years of SA302 forms.

Some smaller lenders will accept just one year’s worth of accounts. Aldermore now accept applications accompanied by just one year of qualified accounts, an accountant’s certificate, or a SA302 and accompanying tax documents from HMRC.

McDowell adds: “First-time buyers have a notoriously difficult time getting on the property ladder and for those who are self-employed, the issues escalate. This is why, following a review of its self-employed mortgage criteria, Aldermore has taken the decision to reduce the number of years accounts a self-employed borrower must provide when applying for a residential mortgage – from two years’ to one – taking into consideration profit retained within the business when assessing affordability. These changes will provide applicants with additional flexibility and support, helping them to purchase their first home.”

If you’re self-employed, using a mortgage broker can help you access a wider range of mortgage options. For example, both Paragon Mortgages and The Mortgage Lender have this year launched a new range of 'complex' mortgages designed specifically to help the self-employed.

This Is Money also report that Kensington Mortgages, Precise Mortgages, TSB, Bluestone, OneSavings Bank and many of the small building societies also offer products designed to help self-employed applicants.

Some mainstream lenders including Nationwide, Halifax and Virgin Money do also have competitive deals for business owners. This Is Money reports that brokers say that “Halifax particularly excels at lending where applicants are contractors if they earn more than £75,000 a year”.
 

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