According to recent research carried out on behalf of Foundation Home Loans, almost two-thirds of freelancers find it significantly more difficult to find a mortgage than those in employment.
The survey revealed that 59% of self-employed workers believe it takes longer to secure a mortgage because of their status and 51% say there is a limited choice of lenders available to them.
60% of freelancers believe that some lenders do not want to deal with them because they are self-employed, with only 39% feeling now is a good time to be a homeowner, compared to 47% of employed respondents.
That said, the research suggested a disconnect between perception and reality when it comes to mortgage accessibility, with just 14% of the self-employed respondents saying they had actually been declined a mortgage due to being freelance.
44% of freelance borrowers were more likely to use a broker or IFA, compared to 31% of those in employment.
The survey also asked self-employed respondents to share their financial experiences over the last two years since the pandemic, with nearly three-quarters reporting no negative financial impact.
Interestingly, employed borrowers were three times more likely to have fallen behind with loan or credit card payments in the past year than self-employed people.
While only 13% of freelance respondents said they had taken a government grant or loan, the research suggested that freelancers were more likely to report a low credit score, and only 42% had checked their credit file.
Self-employed respondents were also more likely to have seen “a big reduction in income” for reasons unrelated to the pandemic over the last 12 months.
Freelance participants presented several messages to lenders, asking them to take full account of their earnings, factor in the entirety of the period they have been working for themselves, consider each case on its merit and take a more flexible approach.
Respondents also shared their hopes for how they would like lenders to consider their applications.
George Gee, Commercial Director at Foundation Home Loans, said:
“What is clear from this exclusive research is we are seeing a disconnect between the perception of self-employed borrowers in terms of what they can secure in the mortgage market, and what might be available to them, based on their financial circumstances, their experience over the last 12 months, and their ongoing credit-worthiness.
“There is no doubting, however that for many self-employed, that perception of restricted mortgage choice is indeed accurate post-pandemic: their options have reduced simply because the way some lenders assess these customers no longer meets what is required in this new landscape of more complex employment and income types. A blanket approach based on a very limited view of borrowers’ recent financials, or an assessment purely based on the sector they work in, cannot give a fair picture of their credit-worthiness, and it’s because of this that more self-employed borrowers would be better served looking at non-mainstream routes.
“However, there is a lot to be positive about here, particularly in terms of the strength of the financials of these self-employed existing, and prospective, homeowners; the majority have not endured negative financial experiences since the onset of the pandemic, and only a small number are being declined for mortgages.
“There are some key messages we need to get across to the self-employed borrower base and they involve outlining that not all lenders approach them in the same way. There are many calls for flexibility and to be treated as individual cases not a homogenised group, and that’s certainly the way we work with the self-employed at Foundation, trying to understand their circumstances, taking into account various income sources, their current situation and recent history to ensure we can provide a fully-rounded decision on their mortgage affordability, so these borrowers get the mortgages they require.
“This research also stresses the ongoing need for adviser intervention, and us as an industry to continue to direct the self-employed down the advice channel because by doing this they will have a much better chance of securing mortgage finance, and their customer experience will be greatly enhanced.”