Mortgage Saver Review - May 2019
Today’s borrowers face many challenges as a result of an unfair mortgage system.
From paying over £4,500 a year in extra interest due to slipping onto their lender’s Standard Variable Rate deal, to being advertised attractive low-rate deals that often aren’t always what they seem.
Our annual Mortgage Saver Review report aims to highlight these challenges, understand them, and propose solutions to make mortgages fairer for everyone.
In this third report, we look at the challenges faced by one of the largest groups of people in the UK: the self-employed.
Getting a mortgage when you’re self-employed is painful
Planning work hours around your family, increasing your earnings potential, and following your passion are great reasons to be self-employed.
But if you think it might improve your chances of getting a mortgage, think again.
The mortgage industry has lagged behind the changing needs of the UK’s workforce, and it’s something our founder Ishaan Malhi has experienced first-hand.
“I left my previous permanent job to follow my dream of working with early-stage tech companies, and I was itching to get on the housing ladder. Having previously worked within the mortgage division of a prominent investment bank, I was sure I knew what I was doing. But I couldn’t have been more wrong.”
Faced with unsuitable mortgage products, additional costs, a long list of paperwork, and lenders asking for double the required deposit, he was effectively shut out by the system.
Highlights from the report
Lending criteria is inconsistent and confusing
For example, while contractors and freelancers may be viewed by HMRC as self-employed for tax purposes, most lenders don’t assess them in the same way when they apply for a mortgage.
Lenders also classify self-employment based on how much of the business someone owns. This varies between 10% and 33%, depending on the lender.
Affordability assessments are often incompatible with tax advice
The way the self-employed are assessed on whether they can afford a certain mortgage amount varies between lenders.
For those in permanent employment, or on a permanent contract, lenders assess affordability on their income as well as financial commitments and outgoings.
But determining affordability for the self-employed is a more convoluted process, with assessment in one of the following ways:
The average of the last two years salary and dividend income (unless the latest year is lower)
The average of the last two years net profit and salary (unless the latest year is lower)
This makes it difficult for lenders to determine affordability as some self-employed borrowers may structure their income in a tax-beneficial way.
The amount of required documentation is extensive
Lenders will ask self-employed borrowers to provide much more documentation than someone who’s permanently employed, making this part of an application a particularly challenging requirement to meet.
The task of locating these documents often contributes to delays, especially as some documents need to be requested from an accountant or HMRC.
In fact, 20% of self-employed borrowers found the time spent gathering information for their application a challenge.
Creating a better future for self-employed borrowers
We surveyed more than 2,000 self-employed people who’d attempted to secure a mortgage, and we were shocked by some of our findings.
The impact of these challenges have caused many to make significant sacrifices, including delaying motherhood, moving abroad, and even giving up being self-employed altogether.
In response, our founder Ishaan says:
"The solution is clear. The industry must change its requirements and processes to support the self-employed.
We’ve detailed our recommendations within the report, and have already begun speaking with industry and Government influencers to encourage the implementation of these recommendations.
I encourage you to read this report and raise its findings with your local MP or your bank. Because while Trussle will do all we can to make things right, it will undoubtedly take a larger effort to make mortgages fairer for everyone."