A total of 48 per cent of the sample stated that they owned a home with a mortgage and of these two-thirds (63%) were self-employed at the time of applying for and obtaining their mortgage.
Self-employed men (52%) were more likely than women (39%) to currently be homeowners with a mortgage. Similarly, those operating through a limited company (56%) were more likely than sole traders (32%) to have a mortgage.
We know from previous research that there is a perception that getting a mortgage is difficult as a self-employed person. Previous findings have revealed that over half of the self-employed (52%) believe that mortgage providers do not want the self-employed as customers and that mortgage advisors at banks and building societies do not understand the self-employed people’s financial situation.
There is also the perception that mortgage providers expect the self-employed to jump through more hoops compared to employees in the application process (60%) and that it is difficult to supply the financial information required for a mortgage, especially if you are new to self-employment (58%).7
In contrast to this perception, the current research shows that, of those who had obtained a mortgage whilst they were self-employed, over half (56%) had found the process somewhat or very easy.
However, a quarter (25%) stated that they had found it somewhat or very difficult. The top reason why some found it difficult, shared by almost all those who had struggled, was having to provide more paperwork because of their self-employed status (96%).
Worryingly, 70 per cent also stated that some lenders wouldn’t consider them because of their self-employed status.
Almost 60 per cent of the sample (59%) also had the overall feeling that they were being penalised because of their self-employed status.
In addition, some faced financial difficulties including rates being higher than they wanted (33%), a lack of low deposit mortgages on offer (28%) and not being able to borrow the amount they needed (20%).
These trends have also been reported in recent media that many lenders have been “slashing how much self- employed people can borrow, stalling purchases to double-check paperwork or refusing to accept applications from self-employed workers altogether”.8
Previous research with the wider self-employed population revealed that 11 per cent of those who had tried to obtain a mortgage were ultimately unsuccessful.9 In fact, recent research by Aldermore bank shows that being self-employed is the most common reason that first time buyers were denied a mortgage.10
Looking at the current sample of highly skilled freelancers, six per cent revealed that they had previously been denied a mortgage because of their self-employed status with the majority (92%) stating that they had not and the remaining two per cent preferring not to say.
The key reasons for being denied a mortgage were because lenders did not recognise dividends when calculating income or because of difficulties around proving income. For example, lenders would not accept tax returns as evidence of earnings; there were also a range of other issues to do with people not being able to provide the required paperwork.
“They did not consider my ltd company's turnover (dividends) when calculating my income.”
“I had fewer than 3 years' accounts.”
“I was denied a mortgage at the underwriting stage, despite being offered a mortgage in principle because the lender changed their requirements and refused to accept tax returns as evidence of earnings.”
One in seven (15%) were hoping to purchase a property in the next five years for a range of different reasons.
Younger freelancers aged 16 to 39 (39%) were significantly more likely than those aged 40 and over (7%) to be planning to purchase a property in the next five years. Women (25%) were also more likely than men (11%) to be looking to buy in the next five years.
The top reason for wanting to purchase a property in the next five years was because people wanted to invest in their future (72%) and three-fifths (60%) also wanted to have more security.
We know from previous IPSE research that buying a property is the third most popular way to save for later life, with one in seven self-employed people (14%) stating that this was how they were investing in their retirement.11
There were also a range of reasons around wellbeing, including wanting somewhere to really call home (67%), and to improve their quality of life (60%). Since the onset of the coronavirus pandemic and the introduction of the first restrictions back in March 2020, people have been spending more and more time at home and therefore the home environment has become more important than ever.
The third most selected reason for wanting to purchase a property in the next five years was financial, with 62 per cent of self-employed people believing that owning a property could be cheaper than renting.
The majority of those looking to purchase a property in the next five years shared similar concerns about their chances of doing so.
Almost two-thirds (63%) of those who were planning to become homeowners in the next five years were concerned about the state of the UK housing market, significantly higher than the sample as a whole (35%). With issues such as the coronavirus pandemic and Brexit currently unfolding it remains uncertain what impact these will have on the UK housing market in both the short term and the longer term.
Over three-quarters (77%) of those who were planning to get a mortgage in the next five years were also concerned that sourcing a mortgage would be difficult because of their self-employed status. This is unsurprising given stories in the media about mortgage lenders refusing self-employed people as customers and reducing the loan-to-value and loan-to-income rates for self-employed people.12
Three-quarters (75%) were also worried that they would not have enough job security to get a mortgage.
2020 has been a very challenging year for workers in the UK with overall unemployment rates going up13 and a record 9.9 million people on furlough at the end of the year.14 Self-employed people have also been struggling, with work drying up and a lack of support available. Data shows that the amount of time per quarter that freelancers were not working rose to record highs in the second quarter of 2020 (5.5 weeks out of 13 weeks) and remained high throughout the year with freelancers reporting they were not working 4.3 weeks out of 13 in the last quarter of the year.15
Three-fifths (60%) were also concerned that they simply wouldn’t be able to afford a mortgage. Again, the coronavirus pandemic has caused a range of financial issues and whilst the government introduced the Self-Employed Income Support Scheme (SEISS) to help the self-employed throughout the crisis, millions of self-employed people have not been able to access it due to ineligibility.
Previous research revealed that as a result of the coronavirus pandemic, over a quarter of freelancers (27%) have used up all or most of their savings in order to support their financial situation. A quarter (23%) have also taken on credit card debt and one in eight (14%) have had to use their overdraft facilities to support themselves.16
A lack of financial support, a reduction in savings and higher levels of debt have left many self-employed people in a precarious financial situation. This, coupled with news of lenders increasing deposit rates for self-employed applicants and decreasing the maximum loan-to-income for self-employed borrowers, means that it is becoming increasingly difficult for the self-employed to get on the property ladder.17
One in ten respondents (10%) were not current homeowners and were not planning to buy a property in the next five years.
The main reason for not wanting to purchase a property was because the deposits required to buy a home were too high, with 55 per cent agreeing.
The pandemic was also a reason for not wanting to purchase a property in the next five years with a quarter of respondents (25%) stating that they were not planning to purchase a property because the pandemic had caused a lot of uncertainty and a fifth (20%) revealing that they had to use up all of their savings. This is hardly surprising considering that 90 per cent of the whole sample stated that they were concerned about the financial impact of the coronavirus pandemic.
Two-fifths (39%) also believed that it was too difficult to get a mortgage as a self-employed person and over a third (36%) didn’t want to commit to purchasing a property in the next five years or couldn’t afford a property in the area where they lived.
What further support do selfemployed people need with regard to mortgages?
The data revealed that only half (51%) of those who were planning to get a mortgage in the next five years felt that they fully understood the steps that they needed to take to do so. This reveals that there are significant gaps in knowledge around the mortgage process.
Self-employed people stated that they would like more support to understand what they need to consider when sourcing a mortgage as a self-employed person (56%) and how to find the cheapest deals for the self-employed (55%).
There was also a need for support around how to get their finances in order before applying for a mortgage (50%) and what to take into account when considering a mortgage deal (49%).
The research revealed that many of these areas, where there is a lack of knowledge, can be alleviated by applying for a mortgage via a broker rather than going directly to the lender.
65 per cent of those planning to use a broker to obtain a mortgage felt they can help self-employed people get the best rates and thought it was easier (42%) and quicker (31%) to go through a broker than to go directly to the lender.
One respondent commented that a “high street bank refused the amount I wanted to borrow although they offered a mortgage. However, the same bank offered more than what I needed when I applied through a contract mortgage broker”.
Martin Lewis also states on his Money Saving Expert website that “Due to the coronavirus pandemic and the financial impact it has had on the mortgage market – in particular that many mortgage lenders have tightened their lending criteria as a result of the economic fallout – it's arguably more important than ever to use the help of a qualified mortgage broker when you're looking to either remortgage or take out a mortgage”.18
We have seen that coronavirus has had a significant impact on self-employed people’s finances and the majority (90%) continue to be concerned about the financial impact of the pandemic. As we find ourselves in a new national lockdown at the beginning of 2021, it remains unclear when the UK economy will fully reopen.
As mentioned previously, the government introduced a range of support schemes; however, many self-employed groups were left out and received little or no support. During the pandemic, the government has also offered some financial support to people with regard to mortgages, including a mortgage payment holiday for those who have been adversely affected. However, applicants were only able to have a mortgage holiday of up to six months, and in this research, only 20 per cent of freelancers with a mortgage stated that they had successfully applied for this.
In addition to the coronavirus pandemic that has been dominating the news over the last year, there are other areas that are adversely affecting the self-employed and their businesses, which continue to be a cause for concern.
One issue that has been shrouding the country in uncertainty in the four years since the 2016 referendum is Brexit. The UK officially left the European Union on the 1st January 2021 with a deal in place and new rules around work, trading and travel coming into force. However, it remains unclear what the full impact will be on the UK’s self-employed, their businesses and their income. In fact, our research shows that 68 per cent of freelancers remain concerned about the impact of the UK leaving the European Union. For freelancers who have the majority of their contracts abroad, the level of concern rises to 81 per cent.
With the level of uncertainty around Brexit remaining, only time will tell what the full impact will be on freelancers’ businesses.
Another issue that is affecting a large proportion of the self-employed are the changes to off-payroll tax rules (commonly known as IR35) in the private sector. These changes were due to come into effect in the private sector in April 2020 but were postponed by a year due to the onset of the coronavirus pandemic.
These changes will affect self-employed people working through their own limited companies and will mean that the responsibility for determining employment status for tax purposes will now lie with the client as opposed to the individual worker. The announcement of the changes has led to many organisations either blanket-assessing all their contractors to be “inside IR35” or ceasing to work with contractors altogether.
Over two-thirds (70%) of the sample were concerned about the impact of the IR35 changes, with 53 per cent stating that they were very concerned. When looking only at self-employed people operating through limited companies, who will be those affected, we can see that 88 per cent were concerned including 75 per cent who were very concerned.
Limited companies have been one of the groups who have largely been left out of government support measures throughout the pandemic and many will soon be facing additional challenges as a result of IR35. These financial pressures may make large purchases such as buying a property less achievable.
The impact of the pandemic on self-employed people’s finances, coupled with lenders cutting the amounts that self-employed people can borrow, has deeply worried many who are hoping to purchase a property in the near future. In particular, three-quarters (77%) are concerned that sourcing a mortgage will be difficult because of their self-employed status and that they won’t have enough job security (75%) to be in a position to buy. A total of 60 per cent are also concerned that they won’t be able to afford it.
Some of the main reasons people were keen to get on the property ladder were to invest in their future (72%), wanting somewhere to call home (67%) and improve their quality of life (60%).
The main reason why people weren’t planning to purchase a property in the near future was because the deposit rates were too high (55%) and, as mentioned earlier in the report, several lenders expect self-employed people to pay higher deposits compared to employees.
There are several things that government and industry can do to make sure that self-employed people have a fair chance to obtain a mortgage in order to invest in their futures and improve their quality of life, and these are outlined in the recommendations section below.
Key recommendations:
- Government and the mortgage industry should work together to explore tailored products and ways of making it easier for the self-employed to successfully apply for mortgages.
- Mortgage lenders should ensure that their advisers are fully trained to understand the self-employment sector and their financial situations.
- Modernise the tax and employment system to make it easier for lenders to assess freelancers’ financial situations and de-risk them as customers.
- Government should ensure that self-employed people who have taken mortgage payment holidays or accessed the SEISS are able to access other loans in the future without being penalised.