The common misconceptions about self-employment and getting a mortgage

Mhari Aurora
·3 mins read
Beautiful Senior Short Hair Woman Using Smart Phone While Working in Her Workshop While Taking Customer Orders by Phone and Selling Products Online. Portrait of Self Employed Mature Female Working in Her Workshop while using Mobile Phone.
Beautiful Senior Short Hair Woman Using Smart Phone While Working in Her Workshop While Taking Customer Orders by Phone and Selling Products Online. Portrait of Self Employed Mature Female Working in Her Workshop while using Mobile Phone.

It has long been believed that self-employed people always got the short straw when it came to getting a mortgage, however mortgage lenders are not as put off as we thought.

According to data from the Office for National Statistics (ONS) there were more than five million self-employed people in the UK in the last quarter of 2019, constituting more than 15% of the working population, compared to 3.2 million in the year 2000.

In an interview with Yahoo Finance UK, business development director at Hodge Bank, Emma Graham, said: “I don’t think it [being self-employed] makes a big difference these days, it is just as easy to get a mortgage if you’re self-employed than if you were employed.

“Going back a generation ago it was quite tricky, some of the requirements were quite onerous, but self-employment is ever-growing and more popular.

“The challenges can come if you are newly self-employed and have a limited history of your accounts, but an adviser will know exactly where you should go to get the best deal.”

Social distancing restrictions due to the coronavirus pandemic have made many workers find ways to work productively from the comfort of their own homes, and remote working may become more mainstream even after working life begins to return to ‘normal.’

The ONS Labour Force Survey found there had not only been an upward trend in self-employment, but the two age brackets furthest apart from each other - 16-24 year-olds and age 65 and over - were the ones opting most for this alternative way of earning a living.

Increase in self-employment by age 2001-2016
Increase in self-employment by age 2001-2016

One of the common misconceptions about being self-employed is that mortgage lenders won’t see you as a safe bet, but there are some easy steps self-employed people can take to get the mortgage that works for them.

The first is to get a certified or chartered accountant to prepare and sign off your up-to-date accounts so that the mortgage lender can be sure of your income and potential future earnings.

So make sure to examine your finances well before going to a lender.

Another tip is to get professional advice from a financial adviser before you apply, this way you can make sure you are prepared and understand what will be expected of you.

According to a survey from financial services group Hodge, 70% of under 35s rely on family and friends for financial counsel, and this age category are the least likely to seek professional financial advice with only 20% of them having sought guidance from an independent financial adviser.

Graham from Hodge said: “A lot of people of that age group don’t understand what a financial adviser or a mortgage broker is, and the value they can bring them.

“They associate that sort of person with warranting a very big price tag which is a common misconception.”

We can see from the ONS chart below that although more employed people own more of the property wealth worth up to £250,000 ($316,777), the scales tip beyond that price threshold and it is in fact self employed people who own more higher value property in the UK.

Net property wealth for employees and the self-employed for those aged between 35 and 54
Net property wealth for employees and the self-employed for those aged between 35 and 54

We can see the same pattern between self-employed people and employed people in the over 55s category too.

Net property wealth for employees and the self-employed for those aged 55 and above
Net property wealth for employees and the self-employed for those aged 55 and above

These data suggest being self-employed is no longer an obstacle when it comes to owning your own home, as lenders learn to move with the times and people’s choice of working style.