Lending criteria in the UK has not kept pace with the changes in the labour markets. Now, with the solo Self-Employed sector making up a whopping 4,355,000 people*, lending criteria can be unfairly weighted against self-employed professionals.
In our recent research conducted with IPSE, we found over 3/4s of the respondents who were planning to get a mortgage were concerned because of their self-employed status.
Lenders have a tendency to pigeonhole people. In simple terms, they view individuals as employed or self-employed.
When assessing employed individuals for funding, lenders will assess PAYE to establish what can be borrowed.
Some lenders may take into consideration a percentage of additional income such as guaranteed overtime, commission or a car allowance. They will require salary statements and P60’s to verify the income.
When assessing self-employed individuals for funding, lenders will look to verify income via accounts, and will either look at salary plus dividend or net profit in the majority of cases.
They will require evidence of two to three years of accounts.
Using traditional criteria for contractors in some instances does not fit.
For those of you using umbrella companies, many of your expenses, holiday pay or commission (depending on how your umbrella company structure your payslips) are not included in your income calculation and therefore can lead to a shortfall in what you can borrow.
For those of you using limited companies, or acting as sole traders, again the same situation arises if you retain monies within your company.
With the added requirement of two to three years accounts, problems may be caused if you do not have this information available or the figures have fluctuated during the period.
We have worked vigorously for over 10 years to influence lenders view on contractors and independent professionals.
Our main issue has been that you are not considered an employee in the traditional sense if using an umbrella process, and if you are a sole trader or a limited company you do not run a business with huge overheads.
This has led to bespoke underwriting criteria for contractors. In essence we can annualise your contract rate and utilise this as an income figure for mortgage funding.
We have campaigned for a more flexible approach by lenders when looking at mortgages for contractors. We have managed to overcome potential issues by utilising bespoke underwriting terms for contractors.
Bank of Ireland
Coventry Building Society
The Mortgage Works
As a contractor it can be useful to get expert help in any case with your mortgage journey – being independent makes you different from the norm, too often that means conventional service providers can end up leaving you in the lurch.
At CMME, we’re dedicated to supporting Britain’s growing community of independent professionals – particularly in the wake of COVID-19’s impact.
For us, your mortgage is as unique as you are and we know the value of listening carefully, asking the right questions and being ready to work hard on your behalf.
*According to recent research conducted by IPSE.