The number of Self-Employed workers in the UK has almost hit 5m (representing 15% of the total workforce). Yet this group still faces problems when it comes to securing a Mortgage and has eligibility concerns regarding Protection cover. (Source: Office for National Statistics, Labour market overview, December 2019)
Securing a Mortgage for the Self-employed
Lenders may not necessarily view the self-employed as a greater risk to lend to. However, they do have issues about how to assess their ongoing income.
This is compounded by the way some self-employed organise their payments to ensure they’re tax-efficient. This may work against them when endeavouring to demonstrate to a lender they have the ability to fund the loan they wish to take out.
The term ‘self-employed’ can also present a problem for lenders, as it pulls together a whole host of different individuals. These include contractors, sole traders, gig economy workers, freelancers, and early-stage start-ups. This could mean that a myriad of workers with differing income streams and earning potential are lumped together. The result is often the computer algorithm saying: ‘no’.
However, interestingly, those self-employed who have jumped through the hoops and secured a mortgage may be a safer bet than first-time buyers. The analysis shows that they could have taken out a mortgage 29% larger than the original loan borrowed. (Source: Kensington, Affordability Tracker, Q2 2019)
Along with possible conversations with your accountant to discuss how your payments are structured to make you more appealing to a lender, it’s vital that you seek advice. We can help identify the lenders that may be interested in doing business with you. There are a number of them that are more amenable to this sector. Why wouldn’t there be when there’s a marketplace of 5m individuals to target!
Protection considerations for the Self-employed
Nearly a third of self-employed and contract workers would run out of money within a month if an accident or illness stopped them working. (Source: LV, November 2019)
Should they be off work for a lengthy period due to illness or injury – the majority of self-employed workers will not be entitled to Statutory Sick Pay. They would, instead, have to pursue a lengthy claim for benefits such as Employment and Support Allowance, and any other benefits, dependent on the severity of the illness. Yet it’s unlikely that payouts would equate to the average UK household expenditure of almost £600 per week. (Source: Office for National Statistics, Family spending in the UK, January 2019)
That’s why it’s vital that the self-employed consider income protection, as well as life and critical illness cover.
Income Protection would deliver a regular income, for a short-term period, or even up until retirement. It could be highly relevant, yet many wrongly believe that they won’t be eligible for it. That’s why you should talk to us.
Income Protection
Here’s a fictional example of how an Income Protection plan could play out…
Adam runs an IT consultancy. In the last tax year, he earned a gross salary of £90,000. After reviewing his monthly expenditure he took out a Self-Employed Income Protection policy covering 50% of his annual earnings, totalling £45,000 or £3,750 per month.
He opted for long-term cover that would pay out the tax-free monthly benefit for as long as he may need it if he was unable to work and earn an income. He also opted to defer any payouts for six months, as he had sufficient savings to see him through this initial period, resulting in cheaper premiums.
Two years after taking out the policy, he developed cancer, and his claim was approved. In total, Adam was off work for three years. Over this period, he received 30 monthly payments of £3,750, totalling £112,500, enabling him to meet his financial obligations whilst off work, and to focus his energies on recovery.
There is a multitude of providers and product choices to consider, so it makes sense to take advice.
As with all insurance policies, terms, conditions and exclusions will apply.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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