Delaying having children or taking a pay cut – the problem with being self-employed and getting a mortgage

SELF-EMPLOYED workers are taking pay cuts, working in jobs they don’t want and delaying having kids in order to get on the housing ladder, a new report has revealed.

With almost 5million self-employed people in UK, many are having applications for home loans rejected, according to online mortgage broker Trussle.

Nick Murray, 29, took a pay cut in order to get accepted for a mortgage

Self-employed workers have to jump through extra hoops to get on the housing ladder compared to those with permanent contracts.

They have their affordability assessed on the past two to three years’ earnings, rather than their current income.

This means that newly self-employed workers are being pushed back into full-time work that they might not want to do in order to get approved for a home loan.

‘I took a pay cut to buy a house’

For first-time buyers like Nick Murray it also meant taking a pay cut.

The 29-year-old from Devon was rejected for a mortgage while he was freelance, working in IT with a long-term contract.

He was able to get a full-time job with the company – but that meant earning 20 to 30 per cent less money temporarily.

After a couple of months he bought a house near Exeter in Devon with his wife, Oliva, 29, where they now live with their daughter Rosie, who is now 11-months-old.

“If I’d been self-employed for two years maybe I could’ve afforded a bigger mortgage,” Nick told The Sun.

“I was lucky because I could take a job at a company I liked working for – but some are not so fortunate.

“It’s either get a job or wait two years until you buy a house.

“We were in a position where we needed to buy a house because we were having a baby.

“But others have to carry on renting for two more years wasting money.”

What other help is out there for first-time buyers?

THERE are other schemes out there to help first-time buyers:

Help to Buy Isa – This is a tax-free savings account where the government will give you a bonus for saving towards a house. You can save £1,200 in the first month and £200 a month after that. When you buy your first home the goverment will add an extra 25 per cent tax free. You need to have at least £1,600 saved to benefit and you need to 0pen one by 30 November 2019.

Lifetime Isa – This is another government scheme that helps first-time buyers get on the property ladder. Anyone aged 18 to 39 can open one and save up to £4,000 a year. The government will pay a bonus of 25 per cent on anything you save. You can only use the money money for your first home or a pension, if you try to take it for anything else you’ll lose the bonus and face a fine. 
Shared ownership –
Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you’re restricted to specific homes. Over time you can buy a bigger share of your house.

“First dibs” in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.

Starter Home Initiative – A government scheme that will see 200,000 new-build homes in England to be sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest here.

After about 10 months working in a staff job Nick left to set up his own tech company – Pixel Fridge.

Trussle estimates that a fifth of self-employed mortgage applicants aged 25 to 34 are putting off having children to help with their application.

While a third said that their employment status made it harder to get a mortgage.

Trussle is calling on the industry to introduce new products to help self-employed workers.

“The self-employed sector is growing quickly, but the industry isn’t adapting fast enough,” Ishaan Malhi, chief executive of Trussle said.

“As a self-employed mortgage applicant, I was treated differently by lenders due to my employment status.

“I wasted hundreds of pounds between various brokers who eventually shut the door in my face. I ended up out of pocket, confused and without a mortgage.”

Use a specialist lender – and have a big deposit

Self-employed workers can apply using specialist providers, experts advise.

Jonathan Harris, director of mortgage broker Anderson Harris, said: “Lenders which specialise in lending to the self-employed include some mainstream or high-street lenders, depending on their varying specialisms and flexibility, and a few niche providers such as Kensington, which will take one year’s accounts.

“Applicants can also increase their chances of being accepted by having a larger than usual deposit – eg, more than 5 per cent.

“As with any mortgage application you will also need a good credit rating and proof that your income can cover your mortgage repayments.

“It is worth talking to a broker as they will know which lenders are most sympathetic to self-employed borrowers or contractors.”

A UK Finance spokesperson stressed that affordability checks are important to make sure that home loans are suitable for customers.

They said: “Lenders have to undertake a strict affordability assessment, before they are able to offer a mortgage including an income and expenditure assessment and ‘stress testing’ that the loan is repayable at a significantly higher interest rate.

“The purpose of this is to ensure that the borrower can repay their mortgage over the lifetime of the loan in all foreseeable circumstances.”


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