Self-employed borrowers make up an important part of the UK mortgage market. According to data from the Office for National Statistics (ONS), in the years prior to the pandemic the number of self-employed workers in the UK grew to around five million. While it has dropped slightly to around 4.2 million in the early part of 2022, there is still a large number of people who work for themselves.Â
There have long been concerns around how well the mortgage market supports self-employed borrowers. Speak to brokers and they have no shortage of examples of clients who seemed a great fit, but struggled to access the funding they needed.Â
I would argue that the heart of these issues is often the level of communication from lenders around what is and is not acceptable.
How many years of accounts?Â
A big debate comes down to the years of accounts that need to be provided.
Some lenders are particularly strict in demanding that self-employed borrowers supply years of accounts in order to apply for a mortgage, with the decision over how much they are willing to offer based on average profits over the previous three years or so.
This can be a challenging hurdle for some to clear. It may be that the business is only a year or so old, and so cannot possibly supply the accounts history necessary. Equally, there are some who run excellent, thriving businesses but who simply could not operate during the pandemic.
By working off an average of the past three years, which will include the Covid-19 period, the amount these borrowers may be able to obtain can be severely dented.
If lenders are to truly support the self-employed sector, then it is difficult to defend being so strict in excluding younger businesses, or unfairly challenging to those who had a less-than-positive pandemic.
A question of sustainability
Self-employed borrowers aren’t always unnecessarily punished, though. We have seen cases where applicants have looked to take advantage of a single bumper year in order to push the amount being borrowed. It may be that the business had an exceptional 12 months due to factors outside of the borrower’s control, and which are therefore unlikely to be replicated.
While it’s understandable that a borrower will want to maximise the sums they can obtain, it is problematic to use one abnormal year as a basis on which to borrow a mortgage which could prove unaffordable over the long term.
Ultimately, it all comes down to sustainability. At Mansfield Building Society, when we assess an application from a self-employed borrower, there needs to be some confidence that the figures we are presented with are going to be achievable year after year. These figures cannot simply be a snapshot of a particularly positive 12 months that can never be matched again, but equally, the borrower should not be unnecessarily penalised for the pandemic.
Lenders have to be responsible and reflect the fact that a mortgage is a long-term loan, as well as being sympathetic to the ups and downs of recent times, ensuring that the borrower is not taking on more debt than they can actually afford.
A personal approach
Brokers will know only too well that no two self-employed clients are the same. The advice process has to be personal, tailored to their individual circumstances and needs.
We believe that the same attitude is necessary when it comes to assessing applications and underwriting. It’s simply too easy for perfectly good self-employed borrowers to miss out if the lender insists on an automated, tickbox approach.
That’s why at Mansfield Building Society we give our underwriting team the autonomy to truly get to grips with the ins and outs of each application, to get a better grasp of just how important the perceived complexities really are.
By embracing this more flexible and versatile way of working, lenders can support all sorts of self-employed borrowers, and by taking a more personal approach, are best placed to help them with their borrowing needs. 
Tom Denman-Molloy is intermediary sales manager at Mansfield Building Society
