Self-employed and struggling to get a mortgage ?
Applying for a mortgage is one of the more stressful aspects of buying a new house, especially given the changes in the market since the financial crash. Now it appears that the prospects of the self-employed looking to climb up the property ladder have been hampered, following a Financial Conduct Authority (FCA) report that a number of lenders have been incorrectly deducting National insurance and tax twice from their calculations of self-employed applicants.
In 2014 the FCA introduced the ‘Mortgage Market Review’ which are affordability checks to determine the ability of a borrower to pay back a loan. Borrowers are now typically required to prove their incomes and outgoings through bank statements and payslips. Those that are self- employed are thrown further under the microscope, as they need to satisfy tougher lending requirements due to lenders seeing them as riskier borrowers given the variability in their income compared to a full-time employee.
According to calculations done by Smith and Williamson, some self-employed individuals could have been offered ‘maximum’ mortgages valued at 30 percent less than they could actually afford, potentially erroneously pricing them out of the housing market.
The significant complexity of affordability checks does mean the chance of someone who is self-employed getting a mortgage can be down to pure luck. However, don’t be too disheartened. Different lenders have different criteria and use different calculations to determine a borrower’s eligibility – so there’s still a chance if one lender says ‘No’, the next one might say ‘Yes!’