Would you drop your self-employed status to get a mortgage?

If you’ve read our content over the years, you’ll have heard us bang a certain drum. The tattoo from said drum is this:
if you’re self-employed or have a complex payment structure, use a specialist broker to get a mortgage.

And I hear your response. It sounds something like this:
“You are a specialist mortgage broker. You would say that!”

Yes, we would. But it’s not just us saying it.

Have you read our reviews from self-employed people, mainly contractors, from across the board? Almost 1,000 of our clients have vouched for the difference we made in securing their mortgage, despite their complex income situation.

Here’s why we’ve succeeded where self-employed people on their own have failed.

Afin Bank survey of 500 self-employed mortgage hunters

In today’s update, I want to share what happens when people don’t take advice. Afin Bank’s research reflects results from a pool of 500 self-employed mortgage applicants.

The fail rate is staggering. The knock-on impact of such widespread mortgage rejection is even moreso. Let’s take a look at the results, starting with the headliner:

75% of self-employed people would go back PAYE to get a mortgage

Yes. You read the headline right. Three-quarters of the self-employed respondents think they have to change their lifestyle just to get on the property ladder. Really?

I mean, c’mon. That’s crazy. We have over thirty mortgage lenders who we’d class as ‘contractor-friendly’. But they’re so much more than that.

We’ve worked directly with underwriting teams to help them see the whole picture. You can’t use a self-employed applicant’s income in a biased PAYE affordability algorithm and expect it to work.

Many of our lenders underwrite mortgages manually, especially those who specialise in areas like:

• poor credit,
• short-term contracts,
• multiple income sources,
• limited work history, or
• complex incomes.

They look at everything:

• PAYE work history before self-employment
• The longevity of the trade of the applicant
• The applicant’s profitability, today and their business projections
• If there’s a case of adverse credit, the reasons for it
• For first-time buyers, we have JBSP and guarantor mortgages
• Income, top line and disposable

There’s no need for the self-employed to give up what they’ve worked so hard for to get a mortgage. No sirree!

Two exceptions that prove the rule

That being said, there are two scenarios worth mentioning here. The first concerns contractors; the other, sole traders. Let’s look at them:

Contractors dropping into a PAYE role

Since the updated IR35 off-payroll rules were introduced, limited company contractors have had to adapt. They go where the money takes them, and who can blame them? This is the scenario:

The contractor is working an outside IR35 contract through their limited company. No problem. Business as usual.

But the next contract they see is inside IR35. No sweat. To service this contract, the contractor will use an umbrella company.

After that, the next juicy contract is in a full-time PAYE role. They’ll go full-time employed, no problem. And they’ll stay there until the next contract turns up.

Can you imagine explaining this flip-flop work pattern to a generic mortgage adviser? All they’d see is: “Risk! Risk! Risk!”

The specialist broker difference

But that’s why you use a specialist broker with access to specialist underwriters. Many of the underwriters we use wouldn’t even blink at such a dynamic work history. That’s because they understand contracting as well as we do.

But take that CV into a High Street lender? And, yes, we’d understand why the mortgage rejection rate in the survey was so high.

Here are some more of the survey’s findings:

• 26% of respondents’ employment status was the reason for their mortgage rejection
• 23% of respondents’ unpredictable or fluctuating income had been a stumbling block
• 13% of respondents had insufficient evidence of earnings or a shortage of trading accounts
• 13% of respondents had too limited a credit history to get them over the line.
• 30% of the successful self-employed applicants had found the mortgage process difficult

In all of those instances, our brokers could have given specific advice before the applicant applied for a mortgage. Everything, from pointing them to an amenable lender to other ways of improving their credit score, could have helped.

Even for the successful applicants, we could have shouldered the responsibility. It’s what we do: assign a management team to oversee the application from initial data gathering to mortgage completion.

Getting a mortgage as a self-employed worker shouldn’t be this hard!

But here’s the other point: there are those we can’t help.

Not declaring income to the taxman

One of the most common problems we face is from sole traders with cash-dependent businesses. I mean, we get it. The temptation to declare only the bare minimum on their SA302 wins.

That works as a strategy for tax planning. But even underwriters who go through your application manually will work off your SA302. If you’ve not declared all your income, we can’t use the bit the taxman doesn’t see.

Are lenders not keeping up with the shifting self-employed work patterns?

We can only guess at the reasons for Afin Bank’s research. My guess? It’s their genuine attempt to understand the self-employed market to serve them better. Fair enough.

What might have worked better for them would have been to reach out to self-employed-specialist brokers. We’re at the sharp end. We’ve worked with lenders and underwriters. We’ve put in the hard mileage—in our case, since 2004—and have all the answers they could possibly want.

Again, we’re not just saying this. Afin Bank’s survey found that 86% of respondents felt they were an “underserved community”. Whilst this may be true on the High Street, it doesn’t match our history. In fact, we find the total opposite.

Our mortgage success rate is around 94%. In numbers, that means of the 30,000+ mortgages we’ve secured, perhaps 1,000 have not been successful. That’s a fair testing ground for us.

As you can see, our high success rate totally flies in the face of the ‘underserved community’ stat. But that 6% we’ve not been able to help has given us insight into the reasons why lenders reject some self-employed applicants. And it’s why we’re trying to open up mortgages for the flexible workforce even more.

We’re not resting on our laurels

Every year, more and more lenders are adapting their lending criteria to accommodate the shifting marketplace. Cases of bad credit are on the rise. Zero-hours contractors are still plying their various trades. The construction industry will boom when the government gets its act together over housing.

Our lenders cover all those borrowers, and more. But the underlying fact remains the same for the self-employed and people with complex earnings. You need a broker who can interpret your income into mortgage affordability for a specialist underwriter.

Come and see for yourself the difference we can make. We can prove that the stats revealed in Afin Bank’s survey are by no means the norm. Not if you approach a lender through the correct channels. Let us show you the proper way to get a self-employed mortgage!