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Research has shown that a large proportion of self-employed people don’t even bother to apply for a mortgage because they assume they will be turned down. 36% of those surveyed revealed that they didn’t even attempt an application within the last five years.
In addition, the recent study by Together has indicated that this worry may not be entirely without cause, as some 21% of self-employed borrowers have been rejected, with a fifth of them being turned down more than four times.
The increased problem of obtaining finance when working for yourself was recently addressed in our guide, ‘How does being self-employed impact your finances?’, that outlined the issues with being seen as a ‘riskier’ subject for credit.
In many cases lenders – especially high street institutions - will have strict rules on self-employed borrowers providing proof of earnings. Failing to be able to do this is highly likely to result in your application for any kind of credit - whether that is a credit card, loan or mortgage product - being either rejected or the sums offered significantly reduced.
Bearing in mind that the self-employed represent some 15% of the UK workforce (some 4.8 million people) this problem accounts for a significant number of borrowers. While lenders must, of course, judge risk when considering an application from any quarter, the self-employed could well help themselves to improve their chances prior to making an application.
Since the majority of failed credit applications revolve around a lack of recent tax returns, self-employed people looking to obtain a loan should ensure that they have sufficient proof of income prior to approaching a lender. This can be in the form of your most recent tax returns, bank statements or documents such as the Tax Calculation and Tax Overview (or the SA302, to give it’s official name). In this way, you can prove your most recent income and provide a good basis to reassure the lender that you have a regular income that can support the repayments you’ll be making.
Such is the seriousness that the self-employed see this perceived reticence by lenders to give them access to ordinary credit services, such as mortgages, some 65% of the respondents were so bruised by the process that they considered taking a directly employed job to improve their prospects. As Pete Ball, the personal finance CEO of Together, commented: “These findings are understandable, but the fact that so many people are doing themselves out of owning their home because they expect rejection is worrying.
“It therefore requires lenders to invest time and develop experience in understanding applicants’ circumstances in order to be able to help them. Providers have, quite rightly, to ensure that mortgages are affordable for borrowers, but that should not be done at the expense of making it harder for the self-employed. There are signs of improvement across the market, but greater flexibility is needed.”
For a more in-depth look at how best to surmount the problems with obtaining credit if you are self-employed, check out our guide on How does being self-employed impact your finances?. If you are currently looking to move properties or buy your first house then you will find the best deals for you on our mortgage comparison charts.
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