The recent Spring Budget threw up several questions, not least for its announcement of a tax increase for those who operate as self-employed. Despite the plans since being dropped, the announcement has shone a spotlight on the treatment and rights of those who are self-employed in the UK. At the beginning of this week, the PM could be accused of almost doing a U-turn with regards to her treatment of self-employed workers, with speculation mounting that the Government will now look to ensure that the group are better protected. In light of these recent discussions, we thought it about time that we highlighted the stance of the mortgage market with regards to this sector of the workforce.
Preconceptions of Self Employed Workers
Ever since the onset of the recession, it has been the case that self-employed workers are seen as a riskier portion of the workforce for lenders. They have no contract that ties them to an employer for an infinite period and are responsible for submitting their own tax returns. As they are not tied to an employer, they are also not entitled to common employee benefits such as pensions, sick pay and maternity leave. Again, this presents a risk to lenders who are looking to ensure that mortgage payments can be covered in any eventuality.
However, the reality is, more of the British workforce is made up of those who are self-employed than ever before. Many companies are now using self-employed workers in order to dodge paying pensions, sickness and maternity contributions, something which the PM is open to overhauling. Aside from this, a significant number of the UK workforce are defined as contractors.
View of the Mortgage Market
Historically, as mentioned above, self-employed workers have faced significant barriers when attempting to secure a mortgage on a property. In a recent survey by Aldermore, 62% of respondents believed that they would never manage to buy a house. A third of respondents had even admitted to giving up being self-employed in order to secure a mortgage. Unsurprisingly, a significant portion (39%) would like to see better mortgage products hit the market.
Banks are notoriously stringent when it comes to lending to self-employed workers. Many lenders will look for at least two years of trading records and accounts, put together by a chartered accountant. Some will even look for three. Furthermore, a higher deposit is often required. Whilst much of the market is making its way to back to 95% mortgages, this is often not the case for those who are self-employed.
However, times are beginning to change. In light of previous discussions and the more recent spotlight on self-employed rights, some lenders have begun accepting one year of tax returns. The Mortgage Lender and Newcastle Building Society are two of these. Other lenders offering mortgage products to self-employed workers include Halifax and Nationwide.
If you are self-employed, you shouldn’t automatically write off the idea of getting a mortgage. There are options out there. Here at Money Sense Matters, we are not tied to any lender or bank. Thereof, we are in prime position to assess the whole market to find the best solution for you- as we have done for several of our self-employed clients. For further information, get in touch.
As a mortgage is secured on your home your home maybe repossessed if you do not keep up repayments on your mortgage.