Employment status affects mortgage application, new research reveals

Nearly three quarters (71%) of self-employed people who have a mortgage believe their application was more difficult due to their employment status, new research has revealed.

Online mortgage broker Trussle carried out their third Mortgage Save Review, using insight from lenders and 20,002 self-employed borrowers and homeowners.

The report found that a combination of complex documents, additional time and lack of understanding of the self-employed and their needs, has led to a significant number being underserved.

It also found that a third of borrowers had trouble compiling all the information required for the mortgage application, and a fifth (18 per cent) of self-employed borrowers aged 25-34 are delaying having children as a result.

Anthea Morris, director of Better2Know, said: “I thought I would be able to apply for a mortgage as an employee just as I had twice previously.

“I researched all the available mortgages and chose one, saying I was an employee. My application in principle was approved. However, after I had made the offer the application was declined. I tried again with a second provider, and the same thing happened: approval in principle, but declined an offer.”

Being self-employed and the director of her business, Anthea found the process more complicated.

“Previously, as an employee buying my own home, I only had to provide my last three payslips and that was sufficient proof,” she said. “But now I had to provide three months of personal bank statements, payslips and the last two years financial statements of the company.

“Members of my team applied for mortgages at the same time, and their process was simpler. Being a director of a business must change your risk in the eyes of the lender”.

Based on her experience, Anthea advises other self-employed people to go through a broker.

Should you use a broker?

Nicholas Morrey, from John Charcol mortgage broker, said: “In a similar way to how a company needing a particular skillset for a one-off task will turn to a self-employed expert, the self-employed will often need a mortgage expert to understand their situation correctly before sourcing the most appropriate mortgage.

“An adviser in a lender’s branch is only permitted to discuss that lender’s approach to the self-employed. If the applicant does not fit their criteria, they have to politely decline the whole application with no hints as to where might accept them”.

Jonathan Lima-Matthews, public affairs manager at IPSE said: “Mortgages are just one example of the self-employed being financially left behind. For the fast-growing number of people in the sector, who add £275bn to the UK economy each year, this can be very damaging”.

Jonathan has previously written a guide on getting on the property ladder for Freelance Corner.