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Mortgages for the self employed

Mortgages for the self employed

Demand for mortgages from the self-employed and contract workers is rocketing, outstripping growth from employees. This is forcing lenders to lower borrowing barriers and embrace those who work in the “gig economy”.

Nearly one in five workers is either self-employed or on a fixed-term or “zero-hours” contract. Since the 2007 credit crisis these borrowers have found it difficult, if not impossible, to secure a mortgage.

But the tide is turning. Last year 120,000 new loans were taken out by the self-employed, according to the Council of Mortgage Lenders – an 11pc increase on 2015. Loans to employees grew by just 6pc.

David Hollingworth, a mortgage broker at London & Country, said: “The growth in the gig economy has seen employment patterns change and lenders are waking up to the need to adapt.”

Among the big banks, Halifax, Barclays and Clydesdale have all adjusted lending criteria. Smaller building societies, such as Ipswich, Newcastle and Saffron, are opening their doors to applicants without a guaranteed monthly pay cheque. In addition, a group of specialist lenders, most recently joined by Secure Trust, are ready to lend.

Home loan hurdles

The self-employed and small business owners have historically been required to produce at least two years of audited accounts to qualify for a mortgage – often three. So during the last housing boom “self-cert” loans were devised as an alternative whereby lenders accepted the borrower’s word about their income. These were abolished in the wake of the financial crisis.

These hurdles are now a challenge for nearly five million people who work for themselves, plus up to 1.5 million contract workers. Of these, 908,000 work on zero-hours contracts, according to the Office for National Statistics. For most of these workers, their employment status is not within their control and change can come out of the blue.

Mr Hollingworth said: “Your status might change suddenly through no fault of your own, just as you are about to remortgage, which can be a headache. It is a case of finding a lender who is sympathetic.”

Michelle Stevens, head of mortgage sales at Ipswich Building Society, one of the lenders with a range of loans for the self-employed, said: “It can be a problem, but over the years we have identified this group of borrowers as very creditworthy, so it seems unfair to lock them out of the market.

“You might have a solicitor who becomes a partner and so becomes self-employed. We will lend from day one of his self-employment.”

The big banks

The big banks will lend up to 85pc of a property’s value to self-employed or contract workers who qualify for a standard loan.

Halifax has lowered the two-year hurdle and will consider applications backed by just one year of accounts. If successful you can fix interest for two years at 1.54pc, with a £1,499 fee, or 1.44pc for first-time buyers.

It also treats all these employees the same, whether they are staffers or on contract, provided they have 12 months of continuous employment, with six months of their contract remaining – or have two years’ service in the same type of employment.

Certain groups, such as IT or construction workers, where operators are known to move frequently between contracts, will receive a particularly sympathetic hearing.

Barclays still normally requires two years of accounts, but will consider one year. Its two-year fixes start at 1.9pc.

Clydesdale looks at each case on its merits but says it supports contract workers “with a track record in their field”. Its two-year range starts at around 2pc.

Holidays are an area that contract workers need to watch. Mr Hollingworth said: “Sometimes there are gaps between contracts, when people take a holiday. Some lenders will accept this, while others see this as a break in employment.”

Building societies

The Building Societies Association said its members were acutely aware that the nature of employment had changed “massively”.

Paul Broadhead, head of mortgage policy, said: “Building societies work hard to adapt to be as accessible as possible to borrowers with more complex needs.”

Ipswich Building Society requires one year’s worth of accounts and will consider zero-hours workers with 18 months’ employment history. It has a special self-employed range and will lend up to 90pc of the property value at 2.99pc.

Newcastle has a self-employed range requiring only one year of accounts for those with a 25pc deposit. A two-year fix costs 2.2pc with a £999 fee or 2.4pc without. Professionals working on contract are treated as employees, while other contract workers need to show two years of consistent work.

Saffron will lend up to 85pc based on one year of accounts, but a two-year fixed loan will cost 3.27pc with a £999 fee.

Specialist lenders

Secure Trust said it looked at each loan and would waive the need for two years of accounts, usually where a partner is employed.

Rates start at 2.99pc for a 65pc mortgage or 3.64pc to borrow 80pc of the value of a home.

Kensington also looks at one year of accounts and has two-year rates at 3.34pc with a 20pc deposit and £999 fee. Those with 15pc deposits are charged 3.54pc with a £1,299 fee.

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