There are huge numbers of self-employed workers within the UK.
According to data from the Office for National Statistics last year, around 4.2 million people were classed as self-employed in the early months of 2022. This is down from a peak of five million in 2019, with the previous two decades seeing a steady increase in the numbers working for themselves.
While the pandemic, and the subsequent economic uncertainty, has dented the overall numbers, the truth is that there are still big positives that come from opting for the route of self employment.
Greater freedom over the hours you work and the tasks you take on, as well as a more favourable tax setup, are all significant selling points, and mean that there will continue to be millions of people opting for this employment situation in the years ahead.
Unfortunately, for all of the benefits of self-employment, there are some notable downsides too, particularly when it comes to mortgages.
Previous studies across the industry have highlighted the problems borrowers who work for themselves have encountered. There is a fear that lenders will not understand their circumstances, for example by being overly prescriptive around what forms of income will and will not be considered for an affordability assessment.
We know from our conversations with brokers how frustrating ‒ and well-founded ‒ those concerns can be. Some self-employed borrowers who have had applications turned down are convinced it was because of their work situation, and the inability of the lender to correctly assess the key elements of their case.
However, it doesn’t have to be like this. Lenders can, and indeed must, do a better job of helping self-employed borrowers in securing the funding needed for their property plans.
It’s all about underwriting
Marrying the smart use of technology with quality underwriting is at the heart of supporting self-employed borrowers.
At LendInvest, we champion technology as we recognise the ways that it can improve the efficiency of the mortgage process. As brokers know only too well, it has taken a long time for the industry to open its eyes to the potential of technology in delivering a faster and more efficient experience for all stakeholders.
By implementing technology in a sensible way, it can take on the heavy lifting of some of those more time intensive elements of the process, freeing up our underwriters to spend their time on really getting to grips with a case. We have always put great stock on building a team of experienced, understanding underwriters who are able to manually assess cases, allowing them to truly get to grips with the circumstances and determine what’s most relevant. By recognising how technology can support our lending process, we can ensure that those customers who need a more hands on approach will receive just that.
This approach means that we are better placed to make an informed decision around what is truly affordable, taking into account different sources of income where necessary. Just because there is some element of complexity around a borrower’s circumstances, such as being self-employed, that does need to act as an insurmountable barrier to their borrowing requirements.
Lenders need to adapt
The world of work is only likely to become more complex in the years ahead, as businesses and individuals find new ways of getting the most from their efforts. New opportunities are opening up for workers every day, whether they want to be freelancers, contractors or even set up their own businesses.
But what isn’t changing is the desire among people in the UK to purchase property, whether as owner occupiers or investors.
As a result, it’s important for lenders to be able to adapt to those changing circumstances, to find ways to support those borrowers with their funding needs even if their situation is a little out of the ordinary, a little less vanilla.
And it’s crucial for brokers to recognise the lenders who are best placed to work with self-employed clients, the specialists who truly understand the intricacies involved in such cases.
By working together we can ensure that self-employed borrowers do not feel quite so hamstrung by their work situation when the time comes to apply for mortgage finance.
Esther Morley is MD specialist residential at LendInvest
