Self-employed mortgages can be easy, if you choose the right lender
Guest Blog Writer: Paul Adams, Sales Director at Pepper Money
30 September 2024Data from Mortgage Broker Tools supports this perception. For borrowers who are employed, on average, 75% of them can find a mortgage for the loan amount they want. For self-employed borrowers, this drops to 69%. At the same time, borrowers who are employed are, on average, offered an 18% larger loan size than a borrower who is self-employed.
However, the number of options is increasing, with specialist lenders in particular offering propositions that can help self-employed customers secure the loan size they want to achieve.
A significant hurdle for self-employed customers is that many lenders will use an average earnings figure from the last three years of the business in order to assess affordability. However, 44% of self-employed respondents to our Specialist Lending Study say that their income has increased in the last year compared to the previous two years, with 26% saying their income has increased by 10%.
Fortunately, lenders that specialise in lending to self-employed customers have criteria and processes that are designed to meet the particular circumstances of self-employment.
For example, at Pepper Money, our hands-on approach to underwriting means that we don’t have to rely on an average of the last 3 years’ accounts. In fact, we can lend on the most recent year’s figures, which can make an important difference in helping the self-employed achieve the loan size they deserve.
On top of this, we’ve recently introduced criteria that enables us to use net profit retained in the business for affordability, which often provides a truer picture of financial position than the salary and dividends that company directors choose to pay themselves.
Taking this approach means that lending to the self-employed is a growing part of Pepper Money’s business. In the first quarter of 2024, mortgages to the self-employed accounted for 30% of all of our lending, representing a 44% increase on the same period the previous year.
The complexities of self-employed income can certainly put hurdles in the way of a mortgage application for some mainstream lenders, but that doesn’t have to be the case. If you work with a specialist lender who takes a hands-on approach to assessing income and has experience in lending to the self-employed, you can overcome those hurdles. Working with the right lender means that securing the mortgage your self-employed customers deserve can be just as easy as those who receive a regular salary from an employer.
