The number of self-employed is growing in the UK, and has grown more in the last 5 years than ‘traditional’ employment. In 2014, self-employed people made up over 15% of the UK workforce, according to the National Statistics Office. That’s nearly 5 million people.
Reasons behind the upswing include the rising age of retirement and fewer people leaving self-employment to return to traditional employment.
Since lenders have stricter requirements for the self-employed, mortgages have never been easy to come by for business owners and contractors. And the firmer affordability rules, introduced last year, have thrown up another barrier.
When they do lend, banks are inconsistent in how they identify someone as being self-employed. Some consider someone to be self-employed if they own just 5% of a company. While others set the bar at 40%. Most fall somewhere in the 20 to 25% bracket, but it’s another hurdle to jump. Many want to see 2 or 3 years of accounts versus just 1 year for employees.
Having said that, it does look like some lenders are slowly recognising the trend in self-employment, and acting on it. After all, it’s a growing pool of potential custom. Some lenders are now considering not just salary (as has much been the case in the past), but they’re also looking at dividends and funds from directors’ loans. This makes a lot of sense, since when combined they can increase a business owner’s monthly income significantly.
The Yorkshire Building Society, Nationwide, and the Co-operative Bank are some of those lenders currently offering mortgages to the self-employed. LTVs vary between 60% to 75%, while rates range between 3.7% and 5%. Many mortgages offer a reduced rate of 1.1% to 1.4% for up to the first 2 years. Others include Dudley Building Society, Precise and Kensington.
If you’re a sole trader or run a limited company, call us to discuss your options.