The shape of the UK workforce is constantly changing. From company directors to gig-economy workers, the number of self-employed has exploded, but sadly they are being let down in terms of their property-owning ambitions.
There are an estimated 4.4million self-employed workers in the UK, according to the latest statistics. The pandemic saw deliveries and online gig work increase by 7%, and around 1.37 million workers were added to the UK gig economy from 2019 to the end of 2021.
In addition, a study conducted by Together last year found that self-employed mortgage applicants are set to rise by 67% over the next five years – from £20.9bn in 2023 to £34.8bn.
Despite the prevalence of self-employed workers, they are being consistently underserved when they try to secure a mortgage. Further research from Together carried out this year shows that the UK’s self-employed workforce is sitting on nearly £82bn of disposable income, but a shocking four in five of these entrepreneurs have struggled to get a mortgage.
To put this into context, that huge sum could fund the average first-time-buyer deposit 1.6million times over.
Often overlooked is the emotional impact it has. Many self-employed are losing hope of ever getting on the property ladder. Some 83% of those who work for themselves say the mainstream’s current mortgage lending criteria is pitted against them and 87% are even prepared to take on extra work to prove their income on paper.
Many of them put on hold important life plans such as marrying, having children or expanding their businesses – potentially hitting future earning potential – to get on, or step up the housing ladder.
We asked self-employed respondents why they were rejected, and many stated that being unable to prove a steady, monthly income has limited their chances. Clearly the funds are there, yet still they are struggling, and the issue often stems from lenders taking an automated ‘one-size fits al’ to applications. Self-employed, and other non-standard borrowers, often have fluctuating income levels, multiple sources of income or are unable to provide the necessary evidence of income needed to meet mainstream mortgage criteria.
The same is true of self-employed individuals seeking commercial finance. Lenders in this area too often take a ‘computer-says-no’ approach, and so individuals looking to finance their business or to invest often find themselves rejected.
The UK is crying out for individuals that demonstrate entrepreneurial spirit to help grow our economy, so it’s incredibly disappointing to see so many of them struggling with access to finance simply because they are self-employed.
There is clearly a huge demand from the self-employed, so how can brokers best serve them?
Adviser meetings
Quality advice is crucial. For 9% of those we surveyed who were rejected for a mortgage, not being able to talk with an advisor who would understand their circumstances was among the biggest challenges.
A third of respondents in our study said that greater flexibility on mortgage repayments including the ability to overpay or underpay would improve their mortgage application experience.
Nearly three quarters of those we spoke to, told us they didn’t think there were enough products on the market to meet their needs or situation. And almost a third who have applied for a mortgage in the past found it a challenge to actually find a lender who could support their application.
Yet in truth, there are options out there for them, and to serve these customers you need to find an alternative to mainstream banks’ rigid lending criteria. It is worth learning about bespoke, human underwriting used by specialist lenders, as it allows funding decisions to be made based on a view of the borrower’s overall financial circumstances.
As more and more people choose to be a sole trader, freelancer, side-hustler or shareholder a more inclusive approach is required from lenders where common-sense is applied and applications are judged on merit. The market is competitive, and if you are unable to help this ever-increasing cohort of customers, they will simply turn to rivals who can provide the help they need.
Brokers need to better understand self-employed clients, their individual needs and how they can be served best. Learn about alternative ways they can be helped onto the property ladder, and be up to date on the latest product innovations and industry changes. Brokers who can do this, and find solutions for self-employed customers, will surely find success.
Tanya Elmaz is director of intermediary sales at Together
