30 May 2023

Mortgage Intermediaries: Self-employed challenges

By Aldermore Bank

Affordability is stretched this year and that’s particularly problematic for self-employed borrowers. It’s never been harder for some self-employed borrowers to get the numbers to stack up when they apply for a mortgage. Affordability is stretched across the board as a result of higher mortgage rates, and the cost of living crisis is hitting household finances hard, meaning that disposable income is being squeezed. But those who work for themselves have extra hurdles to overcome.

Self-employed challenges 

You’re well aware of the challenges faced by self-employed clients, alongside the fact that not all will have a problem accessing a mortgage on the high street. Providing evidence of income (SA302s or tax year overviews) for the previous two or three years will be straightforward for some self-employed borrowers. But many have non-standard or complex income, which mainstream lenders can’t or won’t consider. Plus, there can be valid reasons why your clients find it difficult to prove their income, despite being an overall good lending risk.

For example:

They are a new business and don’t have the necessary two or three years’ accounts required by most mainstream lenders

They had a particularly bad last year that doesn’t reflect their overall business, but will reduce their borrowing power

They are rapidly growing, so the average of last three years is lower than their current income and doesn’t reflect their borrowing power

They have reinvested into their business, or retained funds, which makes their earnings look lower

They have a complex income structure which makes their income look less on paper than it really is.

Specialist solutions

Luckily, Aldermore designs our products and services to meet the needs of the UK’s 4.2m self-employed1. Below are some of our flexible lending criteria:

  • All of our mortgages are available to self-employed as well as employed borrowers (although different maximum LTV levels may apply)
  • For borrowers with two or more years of trading, we’ll allow the most recent set of accounts to be used for affordability. This is useful for fast-growing businesses
  • If they have less than two years of trading (just one year’s full accounts) we can still lend up 85% LTV (including on mild adverse credit)
  • We allow use of salary and dividend and share of net profit after tax (latest year’s profit only)
  • We’ll also consider retained profits when assessing affordability, so your client isn’t penalised for keeping money in their business.
  • We take a flexible approach so we will lend in many other situations. Our underwriters will assess each case individually.

How we can help 

We helped clinical dental technologist Duan to buy a home despite him having been turned down by his own business bank and other mainstream lenders. They would only consider his relatively small salary without taking into account retained profits he was keeping in the business.

Duan’s business was doing well and his skills were in high demand but he was being careful and taking a small salary so he could build the cash reserves in his business bank account.

However, this cautious approach was preventing him from getting a mortgage, until he came to Aldermore. We took time to understand his whole finances, including his retailed profits, and listened to his story before agreeing to lend.

We were also able to help experienced marketing manager Shaun to get a mortgage after he’d left his job to help his wife’s struggling marketing business. Despite turning it from loss-making to profit-making in the first year, mainstream lenders wouldn’t use his income as he didn’t have two years’ worth of accounts.

At Aldermore we were able to use our one year’s accounts criteria alongside some expert underwriting to go from application to offer with Shaun in less than three weeks.

Backing the self-employed

With affordability stretched in 2023, more of your self-employed clients could struggle to get a mortgage or refinance their existing home loan. Look to specialists like Aldermore who understand the nuances of self-employment. We don’t think borrowers should be penalised for working for themselves. In fact, we know just how hard they work and how committed they are to building their business. That’s why we’ll take the time to understand their case and say yes where we can.

Find out more 

Visit our Intermediaries website, contact your BDM or call us on  0333 321 1000 to find out how we can help your self-employed clients.

1Understanding changes in self-employment in the UK


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