How lenders can better support self-employed workers
With flexible working becoming the norm, self-employment can be a dream for many. In fact, according to Statista, 4.3 million people in the UK have opted for a self-employed lifestyle.
However, being your own boss comes with its own set of unique challenges, especially when it comes to borrowing money. This is where lenders can make a huge difference through greater flexibility and more bespoke affordability assessments.
How flexible self-employed assessments can help
We’re now fully engrossed in the ‘new normal’ and with this comes new ways of working and higher-income-to-house-price ratios. Mortgage solutions need to better reflect the times to ensure homeownership is both attainable and sustainable.
Here at Furness for Intermediaries, we’re firm believers in flexible mortgage assessments. Our flexible approach means that each application is assessed on an individual basis, no matter how complex your client’s income may be. We don’t use the ‘checkbox’ approach often used by lenders to make a computer-based decision. As such, we’re often able to lend to clients that other lenders cannot.
Our self-employed assessment process considers the following:
- Share of pre-tax profits when assessing affordability
- All acceptable streams of income when making a decision
- The capacity to earn additional incomes
- Director’s salary for limited company directors.
A barrister who has only recently qualified.
Most lenders will only work from the previous year’s earnings but, as the applicant has only recently qualified, their affordability didn’t match. The assessed net profit only reflected the applicant's earnings in the first year after completing pupillage. Future earnings are projected to substantially escalate, as the applicant builds a client base - with subsequent year-on-year profit increases expected.
We understand that earnings would be lower in the first year after being called to the bar. We also appreciate the expected income escalation that barristers typically experience in subsequent years. In this case, we would accept a Chambers Letter of projected earnings, backed up with an accountant's confirmations.
In this instance, we weren’t too far away from the latest accounts being finalised anyway, but this approach enabled the client to purchase the property now.
A freelance designer who experienced a decrease in net income, but hopes to remortgage to a fixed-rate product. They had, however, managed to navigate through to better times without taking on any additional debt
A decrease in work opportunities during the previous year means this client’s income would be significantly lower than when they first took out their mortgage.
The key consideration for a case like this would be if the client can prove that they’ve experienced strong performance in previous years. If the client is able to provide management accounts to demonstrate profit returning to previous levels, then we would be able to consider the case.
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