Self-employed borrowers can benefit from a flexible approach to affordability

Self-employed borrowers can benefit from a flexible approach to affordability

Phil Quinn
November 2022

It is generally thought that if a person is self-employed, their options to secure a mortgage become more limited.

If that self-employed person is aged over fifty, those options tend to become even narrower. However, it’s not that way throughout the whole market and it is possible for people over fifty who are also self-employed to qualify for a mortgage, and to do so on an interest-only basis.

At LiveMore, for example, our mortgages are designed for borrowers aged fifty to ninety plus. This includes the self-employed, an area growing due to increased demand. This is where flexible criteria is essential; for example, we have no maximum age for self-employed, but instead look at occupation and plausibility. The demand for this is illustrated in that, more than one in five of our borrowers so far this year have been self-employed.

Perhaps the issue for many lenders is that the self-employed often have complex incomes so brokers need to work closely with a lender to sift through and get a case over the line.

Assessing affordability is dependent on the individual’s circumstances; but if a lender considers all forms of income, mortgages often become affordable for many self-employed even up to aged ninety and beyond.

Lenders prepared to underwrite each case individually and take into account all of a borrower’s forms of income, can often help when borrowers may have thought they have run out of options. For example, we’re open to contractor’s income, and we’ll consider day rates or the previous year’s earnings.

The self-employed sometimes have foreign income, which many lenders will not accept but this is where it’s important for a broker to know their lender, as lenders like LiveMore will still count overseas income, as long as it is not the main source of money coming in.

Another example is rental income. Some older borrowers have invested in property as part of their retirement planning – so a lender needs to consider up to 100% of rental income when assessing affordability.

The Covid pandemic affected many self-employed people who were unable to work during the lockdowns, meaning their income might have been lower than in a typical year.

This should be seen as something to take into consideration by lenders, rather than as an insurmountable barrier particularly as borrowers had no control over the events around the pandemic. For that reason, we take a pragmatic view and will always try to consider how the impact of Covid may not reflect a self-employed borrower’s true long-term profitability.

Some people may have decided to go self-employed during the pandemic, which is why, when plausible, it’s important to consider the latest year’s trading accounts.

This also helps for people who used the Government’s Self-Employment Income Support Scheme (SEISS), which can go against them in some lenders’ eyes, but individual underwriting can look beyond this.

Another potential stumbling block for borrowers is if they have had adverse credit, which many people incurred because of the pandemic. As a result, we are prepared to consider people who have had past arrears and County Court Judgements (CCJs). We’ll also consider defaults in some cases, up to a maximum of £1,500, and for those who have had debt management plans, all if satisfied in the last three years.

It is important that lenders can look beyond set LTVs too. It may be that LTVs go up to 75% but, rather than simply refusing to lend to borrowers if there are aspects of the case that are outside criteria, a lender needs to look at individual circumstances to see if they can find ways to make it work. For example, we can offer up to 50% LTV to those who want to use the mortgage for debt consolidation, or up to 40% LTV when properties have non-standard construction.

So, whatever the profession of your self-employed customers, they may be more eligible for a mortgage than they think. All it takes is for lenders to take each case as it comes and apply a common-sense approach to affordability.