Lending to self-employed mortgage applicants is expected to increase by 67% over the next five years – from £20.9 billion in 2023 to £34.8 billion in 2029.
This is evident from the Residential Property Market Report from specialist lender Together.
With the number of self-employed people having already risen from 3.2 million to 4.3 million over the past two decades, including a further 183,000 in the first quarter of 20242, Together’s research highlights the growing need for support that aspiring self-employed homeowners need in gaining access to financing. and the challenges this group faces in obtaining mortgage deals from major lenders.
They may have fluctuating income levels, multiple sources of income, or may not be able to provide proof of income, putting them outside the normal criteria for a loan.
According to new research from Together, a fifth (22%) of rejected mortgage applicants who would be classified as ‘non-standard’ were rejected because they were self-employed and 10% said this was due to having sporadic income.
The challenges faced by the growing number of self-employed people have meant that only 5% of self-employed mortgage applicants have been successful in the last 12 months3.
However, the changing nature of society and work and lifestyle patterns mean that the sector is likely to continue to grow in the coming years. In fact, this year, from April to June 2024, there was a year-on-year increase in the number of full-time self-employed people, which Together has also seen reflected internally in increased demand for home loans.
This is in line with a wider trend, with the number of homeowners and potential homeowners facing ‘non-standard’ situations rising nationally – highlighting the need for a more flexible approach from the sector to help non-standard applicants.
A third (29%) said greater flexibility in mortgage repayments, including the ability to overpay or underpay, would improve their mortgage application experience. And 14% said it would be very helpful if lenders standardized the definition and criteria for non-standard applicants.
John Barker, CEO of Personal Finance, commented: “During economic downturns, the tendency for mainstream lenders to rethink their strategies will lead to a more cautious or risk-averse environment. This in turn will always be more beneficial to working borrowers with a perfect credit history than, for example, loans to the self-employed or those with past credit problems – even if the latter can make a larger deposit.”
He added: “As more and more people find themselves as sole traders, freelancers, side hustlers or majority shareholders, what is needed is a more inclusive approach to the financial services sector, where common sense is applied to lending with applications assessed on merit – looking at the whole picture, not just your credit score or loan-to-income ratio.”