Standing behind the UK’s self-employed

Those who work for themselves or run a business should be supported, not penalised, by mortgage lenders, says Nicola Goldie, Head of Strategic Partnerships & Growth, Residential Mortgages, Aldermore

It’s no secret that the self-employed often have to work harder to get a mortgage.

The requirement for all borrowers to prove their income in the 2014 Mortgage Market Review saw the end of self-cert mortgages and made it increasingly difficult for some to access mortgage finance.

Of course, it’s not the same experience for every self-employed borrower, and as a broker, you’ll have helped many business owners and freelancers with over three years of accounts to secure the mortgage they need.

However, there are 4.2 million self-employed workers in the UK and many do struggle to get a mortgage.

Research conducted by Aldermore* has revealed that many recent and aspiring first time buyers have even had to go as far as sacrificing their self-employed status to get onto the property ladder.

Access to mortgages

At Aldermore, we back business owners, entrepreneurs, contractors and freelancers to reach their goals and all our mortgages are available to the self-employed.

We don’t think those people helping to grow the UK’s economy from the ground up should be penalised for their employment status when they apply for a mortgage.

Of course, we recognise that mainstream lenders don’t always take the same approach and that strict lending criteria can exclude the self-employed. It can take longer to assess complex or non-standard accounts and self-employed finances don’t always fit neatly into a tick-box approach to underwriting.

Specialist lenders, including Aldermore, take a different view. Our experts understand the valid reasons your clients might find it difficult to prove their income, despite being an overall good lending risk.

For example:

• New businesses may not have the two- or three-years’ accounts required by most mainstream lenders but can still be run by highly experienced professionals. That’s why we can potentially lend based on one year’s accounts where your client has previous employment in the same line of work or can demonstrate guaranteed income for the next accounting period.

• Some firms may have experienced a bad year that doesn’t reflect their overall business and could reduce their borrowing power. We’ll find out what happened and what they’re doing about it. We understand that illness, separation and other life circumstances can temporarily derail the best-laid business plans, and that income volatility is part and parcel of self-employment.

• When a business is rapidly growing, the average of the last two years’ earnings might be much lower than their current and expected future income. We recognise that averages don’t always reflect their borrowing power and will assess affordability based on the last year’s accounts where appropriate.

• When an owner reinvests profits into their business it can make their earnings look lower while boosting future potential earnings. Our underwriters can take retained profits into account.

• Many self-employed people are advised by their accountant to claim allowable expenses or pay themselves a dividend and salary to legally reduce their tax liability. It can make their income look less on paper, but Aldermore’s specialist underwriters understand these nuances of self-employed finances.

• Contractors can also find that their income on paper doesn’t always reflect their current earnings or affordability potential. By allowing contractors to choose to be underwritten based on self-employed earnings or ‘employed gross income’, Aldermore supports this under-served market.

How can brokers help

Many brokers are already experts in helping self-employed borrowers access mortgage finance, on the high street and through specialist lenders.

By asking your self-employed clients for their documentation early (even at the first meeting) you can clarify any gaps or discrepancies and build a picture that accurately represents their earnings.

If they have non-standard or insufficient years of accounts, you may need to look beyond the mainstream market at lenders that support the self-employed and design products and criteria to meet their needs.

Aldermore may be able to accept one year of accounts instead of two or three, and can consider retained profits, salary and dividend and share of net profit when assessing affordability.

Even if your client slips just outside of lending criteria or has experienced a credit blip (or both), specialist lenders will usually take a more pragmatic approach.

At Aldermore, we trust our expert underwriters to get under the skin of an application that falls outside criteria. They understand the challenges faced by self-employed clients and look beyond net profits to get a fuller picture of their business. It means we can say yes to more of your clients while lending responsibly.

We all know just how hard the self-employed work and how committed they are to building their business. Let’s work together to help them to reach their homeownership goals.

Research conducted, on behalf of Aldermore bank, by Opinium between 17th – 28th June 2024, among 2,000 Prospective First Time Buyers and 500 Actual First Time Buyers.