Around three-quarters of business owners think being self-employed makes it harder to get a mortgage, a study reveals.
Just under half (46%) of business owners surveyed by Pepper Money in its Specialist Lending Study 2024 believe it is much harder to do so.
This is despite under a third (29%) of self-employed workers saying they made over 10% more profit than the year before, and 15% making 20% more profit than in 2023.
At a time when more people are earning money through side hustles or having multiple jobs, many still think this is a challenge when finding a mortgage.
Overall, 65% of borrowers earn their money through a fixed income, but over a tenth rely on variable income streams through cash earned from being either self-employed, working as a contractor or through a commission-based salary.
The challenges that face homebuyers with their own company range from having just one year’s worth of accounts to show a broker to needing to use the most recent year’s profits.
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This can cause issues for freelancers, who may have experienced a quieter period of work, or business owners who’ve had customers cut back due to the cost-of-living crisis or other financial pressures like rising mortgage rates.
Things could get tougher for borrowers who have their own company, with National Insurance contributions (NICs) for employers rising to 15% in the Autumn Budget last month.
Proving affordability is seen as a struggle
Ryan Brailsford, director of business development at Pepper Money, said: “Self-employment continues to be seen as a significant challenge when it comes to getting a mortgage, and this often comes down to proving affordability.
“Many lenders will base affordability calculations for self-employed customers on an average of their last three years’ submitted accounts, yet our research shows that nearly a third of business owners have increased their income by at least 10% over the last 12 months.”
Brailsford added: “Similarly, there are often occasions where a limited company director may decide to retain some of the net profit within the business instead of paying it all as dividends. This can help reduce their personal tax liability, but it also limits their borrowing power when applying for a mortgage.
“By working with a lender, like Pepper Money, that can make affordability calculations based on one year’s accounts, or even consider retained net profit as part of the calculation, brokers can help to maximise the affordability of their self-employed customers and increase their opportunity.”
