"Lenders who are able to consider multiple and complex income streams, missing PAYE and self-employed income, also opens the door or more borrowers."
The self-employed community and small businesses across the UK have faced a wave of major economic shocks in recent times in the form of Brexit, the pandemic and latterly the cost-of-living crisis.
Such issues have certainly not been limited to this section of society, although there are a large number of cases where businesses of all shapes and sizes have suffered to some extent. In equal measure, there are also many examples of where businesses have evolved and flourished in even the most testing of times.
The strength, skill and innovation behind this resilience is encouraging for the future of the UK’s economic recovery but it’s evident that challenges do remain for SMEs with inflation hitting a 30-year high and a variety of financial burdens placing additional pressure on income and outgoings. Indeed, according to the 2022 Simply Business SME Insights Report, half of small businesses are planning to increase their prices to help get them through the rest of the year.
However, as businesses look to recover from the pandemic, the report added that many are emerging with confidence. In fact, nearly three quarters (71%) of small business owners remain confident about business prospects over the next six months. This is in stark contrast to confidence levels reported in July 2020, when one in five small businesses didn’t expect to survive another lockdown.
Being self-employed and operating an SME often go hand in hand as this involves the inclusion of company directors, individual partners or basically anyone not in a salaried employee position. Being self-employed also applies to sole traders, freelancers and contractors. In addition, through the rise of the gig economy, more people possess the ability to generate multiple income streams which can also fall under the self-employed umbrella.
Historically speaking, from a mortgage market perspective there was a perceived risk premium attached those people with a self-employed status. This may well still be the case for some lenders, but many others are looking beyond this to generate a host of responsible and competitive options for a variety of self-employed people to secure a mortgage which they previously thought may have been out of reach.
It’s also prudent to point out that some challenges remain, especially from an affordability standpoint, as evident in the latest Mortgage Broker Tools (MBT) Affordability Index which showed that only 65% of self-employed mortgage enquiries were considered affordable at the end of 2022. This was said to be the lowest level since MBT started recording the data in 2020 and is down from 75% in April 2022.
To maintain some context, it’s not just the self-employed who are currently having affordability issues, the Index also outlined that affordability is being squeezed across the market, with only 71% of all enquiries being considered affordable in November 2022, down from a peak of 80% in January 2021.
On a positive note, the sustained emergence of the specialist residential sector has made it more accessible for those with a self-employed status or irregular income to obtain a mortgage, largely through those lenders who incorporate a manual underwriting process.
Lenders who are able to consider multiple and complex income streams, missing PAYE and self-employed income, also opens the door or more borrowers. Affordability criteria varies by lender, so it’s important to research which lenders will take 100% or 50% of which types of income into account, as some may be able to offer the required loan amount when others are not.
As highlighted in the commentary around this data, brokers can’t take affordability for granted and researching the best options for borrowers to achieve their desired loan sizes remains a vital component within this process. A factor which highlights the importance of establishing close relationships with lenders who can provide the types of solutions and service values which meet the ever-evolving needs of the self-employed community into 2023.
