Mortgage Lending:

Why banks and building societies should be lending to the self-employed buy-to-let investors!

Leading national broker is urging the mortgage industry to catch up with modern living and end the view that a landlord with PAYE income is more secure than a contractor, or sole trader.

According to the latest Office of National Statistics, the level of self-employment in the UK increased from 3.8 million in 2008 to 4.6 million in 2015. The age of both the part-time and full-time self-employed has also risen and the percentage of self employed in finance and business services has increased considerably, concentrated in the South East and London. In fact, the total number of self-employed workers is fast catching up with the numbers in the public sector. The now represent 16% of the workforce.

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Research from The Tenancy Deposit Scheme (TDS) shows that that almost 20% of landlords have their own business and nearly a third are salaried. According to The Mortgage Broker Ltd, despite the fact that self-employment is growing and making a significant contribution to the UK economy, many self-employed landlords are struggling to get a mortgage. Darren Pescod, Managing Director of The Mortgage Broker Ltd comments: “Figures from Nottingham Building Society show that nearly one in eight self-employed people have been rejected for mortgages since working for themselves, despite often earning more than in their previous full-time employed job.

“Furthermore, the research reveals 12% of self-employed workers have been turned down for a first-time mortgage or remortgage, underling the problems of proving income and affordability for customers who are not full-time employees.

“Ten years ago, sole traders had no problem securing a BTL mortgage, but thanks to tightened lending criteria, many banks and building societies are turning down self-employed investors. The reality is that a borrower with appropriate mortgage protection in place is low risk, regardless of whether they have their tax paid for them, or, if they do it themselves.

“Historically, the self-employed landlords have been a fairly marginal group and many lenders could safely ignore them.  However, the rise of the ‘gig economy’ – people having temporary jobs, or doing separate pieces of work, each paid separately, rather than working for employers – is growing fast and will lead to changes in mortgage lending and the economy overall.

“Thankfully, we now have access to mortgage lenders that are looking at the self-employed a bit more leniently, with some lenders considering criteria of only needing one year’s accounts where previously three years accounts was the minimum required.”

By Darren Pescod, Managing Director of The Mortgage Broker Ltd

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