The self-employed population now numbers about 4.4 million people in the UK. Society and the workplace have largely adapted in the years since the Covid pandemic – an unprecedented time out of which, positively, saw 200,000 self-employed businesses created1. However, despite this entrepreneurial spirit, there are still significant financial challenges facing those who work for themselves.
This is most apparent when it comes to securing a mortgage. Together’s analysis of the market shows that despite the self-employed sector sitting on a collective £82 billion in disposable income the rigid criteria of most high street lenders means it’s still far harder for self-employed applicants to be accepted for loans given many don’t match these “one-size fits all” requirements.
For example, complex and fluctuating monthly incomes – dictated by self-employed or freelancers’ flow of clients’ projects – can cause a headache for inflexible lenders looking for ‘vanilla’ employed borrowers who can provide three months of payslips. When it comes to the self-employed they tend to request several years’ worth of tax returns, business accounts and SA302 forms, to make a lending decision.
Further research we’ve carried out on the sector supports this, with 87% of the self-employed3 agreeing that it is “much harder” to get a mortgage. A large number, 83%, also agreed that the high street's current mortgage lending criteria is pitted against them and 87% said they were even prepared to take on extra work to help prove their income on paper. And, supporting findings from our latest Residential Property Market Report4 found just 5% of self-employed mortgage applicants have been successful in securing a mortgage within the last 12 months.
This all speaks to a broader trend we’re seeing, whereby the volume of existing homeowners and potential homeowners falling under 'non-standard' lending categories is on the rise nationally. We found 40% of those considered ‘non-standard’ have never even tried to get a mortgage - signalling a concerning gap in the demand for a more flexible approach from the industry to helping more people get onto the housing ladder.
Government also has a big role to play to ensure a further stabilising of the dire impact that energy, labour and running costs has to any self-employed business takes place – and quickly. A renewed understanding of the specific financial and business needs of the self-employed sector is also key.
From an industry perspective, this is where specialist lenders such as Together are so important for self-employed wealth creators who will be crucial to the UK economy’s future growth.
Specialist lenders can provide support for this large but underserved section of the workforce by offering bespoke underwriting to get to know the borrower’s circumstances – not just figures on a page.
