Self-employed people have little expectations of securing a mortgage

More than a third of self-employed would-be mortgage applicants didn’t go ahead because they expected rejection, a new study has found.

One in five who applied were turned down because of insufficient proof of future earnings
But specialist lenders take a more understanding view of self-employed applicants

The national study, by specialist lender Together, found that 36% 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% 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 as Together’s research shows around 21% 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. Some 20% of self-employed borrowers said they were denied a mortgage because they didn’t have enough proof of future earnings.

‘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,’ said Pete Ball, personal finance chief executive officer at Together.

‘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,’ he explained.

‘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,’ he added.

The research also found that 65% 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, the firm suggests.