Home ownership for business owners and the self-employed
On Wednesday 6th February, we invited a small group of self employed and small business owners to our London HQ to discuss their experiences and perceptions of getting a mortgage.
We know from experience that self-employed workers are forced to jump through more hoops to get a mortgage than those in permanent employment - in fact, 43% of mortgage borrowers gave up being self-employed due to difficulties securing a mortgage, according to research from Aldermore Bank.
So we invited a group of self-employed borrowers in to understand their challenges and explore potential solutions, with the ultimate goal of presenting these to industry and government to encourage positive change.
Everyone had a personal story to tell; from the person whose lender asked for double the original deposit amount after they became self-employed, to the person who found themselves classed as self-employed despite having a full-time job because they had a certain percent of equity in a startup business.
The event was hosted by our Senior Policy & Public Affairs Manager, Oonagh O Connor, who champions the interests of home owners with Government and industry.
We covered a lot of ground during the two hour session, so we’ve picked some of the key themes that we think could be impacting the largest number of people.
Accessing key information
The problem: It’s not clear how different lenders define ‘self employment’, and which documents they require for a self employed mortgage application.
The group suggested that it would be useful to access a dedicated self employed portal or speak with an adviser that clearly explained the lender’s self employed criteria and listed the documents that would be needed to complete an application so that they could prepare in advance.
Simplifying income assessment
The problem: Lenders assess the various types of income streams (eg. salary, dividends, and profit) differently, and don’t take into account historic rental payments. This could penalise some borrowers, depending on how they structured their business.
The group didn’t understand why lenders didn’t simply look at the applicant’s income, regardless of where it came from. They suggested that treating all income streams equally before deducting outgoings would be a more suitable way of calculating whether a borrower could to meet future mortgage payments.
Meeting modern borrower needs
The problem: Lenders’ products are still too focused on those in permanent employment, and don’t cater for the large and increasing number of people who choose to work as self-employed.
The group thought lenders should lower the minimum required deposit amount, given that their self-employed income could be higher than someone in permanent employment. They also discussed whether lenders could offer more flexible products that took into account income that fluctuated over the year, for example. They thought that open banking could assist lenders in taking a combined view of complicated incomes.
What happens next?
This year we’re focusing our annual industry report - the Mortgage Saver Review - on mortgage accessibility for the self employed and small business owners.
Armed with learnings from this group discussion, we’ll now be conducting wider research and analysis of the mortgage market to validate some of the problems and potential solutions that were identified.
We’ll then highlight these challenges and present potential solutions to senior influencers within the mortgage industry and government to improve the mortgage experience for the five million self employed and small business owners across the UK today.
Because we believe that home ownership should be affordable and accessible to everyone.
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