Some self-employed borrowers are getting “a raw deal” from lenders, with products that don’t meet their needs, it has been claimed.
New data from Direct Line for Business released last week suggested that there are now record numbers of self-employed people in the UK.
The research claims that one in seven people now work for themselves, with the numbers having risen by a million since 2008 to a total of 4.8m.
While men still account for more than two-thirds of these workers, it’s notable that the number of women choosing to become their own boss has soared over the last five years, with 300,000 more female self-employed workers since Q2 2013, a rise of 24 per cent.
Self-employed borrowers don’t necessarily feel that mortgage lenders understand their position or are willing to consider them however.
A recent study by The Mortgage Lender found that almost three-quarters of self-employed borrowers (71 per cent) feel discriminated against by lenders because of their employment status, while more than one in four have been put off buying a property because of the perceived difficulty in getting a mortgage.
Paying lip service
Perception Finance managing director David Sheppard argues that while some lenders are genuinely flexible when dealing with self-employed borrowers, others simply “pay lip service to these clients”.
Sheppard adds that sole traders “still get a raw deal” when it comes to working out their borrowing capacity.
He says: “A sole trader net profit figure will have already allowed for the travelling costs for work and a number of other expenses that an employed person will have to pay from their net salary but these effectively are double counted I find.
“If a lender was to come to the market with a self employed criteria that accepted that these costs could be added back in or use a higher percentage of net profit, then this would redress some of the costs issue that feels a bit unfair right now.”
Finding the niches
White Financial Services managing director Daniel White says that while there are some great products available for self-employed borrowers, the issues “are not so much finding them, it’s the broker understanding what lenders specialise in these areas”.
He adds that while the majority of lenders require at least two years of accounts, borrowers who don’t have that record are not necessarily locked out.
He continues: “There are some cracking lender niches out there, but it’s up to the broker to ensure they know them, know the criteria well, and make sure they relay the message to the client exactly what is and isn’t available to them.”
Sheppard points out that both Santander and Coventry Building Society are particularly good lenders for sole trader borrowers with a rising net profit, as they will both consider using the most recent year in certain circumstances.
He adds: “If trading through a Limited Company then the go to lenders for these are likely to be the ones that work on salary and share of net profit rather than dividends. Virgin Money, Coventry and HSBC stand out for this but more lenders are now willing to take a view on this especially for those with 100% shareholding.”