The self-employed are seeing their mortgage options dwindle as rates rise and many lenders view them as riskier clients than those in full-time employment.
But there is some flexibility among lenders when it comes to evidencing income, says Graham Cox, who is the founder of the Self Employed Mortgage Hub.
And as house prices are expected to fall next year, he is urging buyers to not "overpay" on their current purchases.
In a Q&A with FTAdviser In Focus, Cox outlines the particular issues self-employed buyers are facing in the current environment and gives his take on what the government could do to help his clients.
FTA: What are the particular issues facing the self-employed when it comes to getting mortgages approved?
GC: The main issue for company directors is being able to evidence sufficient income. The majority of lenders only consider salary and dividends, often averaged over the past two years.
Directors often minimise their dividends for tax reasons, which can restrict their choice of lender. This either results in the borrower paying a higher mortgage rate or not being able to get a mortgage at all, because they don't fit the remaining lenders' criteria.
Fortunately, some providers now accept an applicant's salary plus net profit after corporation tax from the latest year's accounts, which can make a huge difference to the maximum borrowing amount.
A few will work with pre-tax profit, though they tend to average the last two years' figures.
FTA: What additional issues has the current economic environment created for the self-employed and how do you overcome them?
GC: The higher mortgage rates we've seen over recent weeks is restricting the maximum amount self-employed applicants can borrow. Sometimes significantly.
This is why house prices are starting to fall. People simply can't afford to borrow as much, and therefore offer as much.
FTA: How would you rate lenders' attitudes towards the self-employed at present and how have these changed in recent months?
GC: Lenders have become more risk-averse generally in recent months, but even more so with the self-employed, as they are perceived as higher risk.
FTA: What fills your workday these days – new mortgages or remortgages?
GC: Remortgages, as people rush to lock in a new rate. Because fixed rate deals have shot up, borrowers are becoming more open to tracker mortgages, despite the risk of being on a variable rate.
FTA: How would you assess the appetite to buy among the self-employed in the current cost of living crisis?
GC: For directors and contractors with sufficient income, there's still appetite to buy.
But understandably people are becoming more wary and many are holding off until there's more certainty around the economy, house prices and mortgage rates.
FTA: What could the government do to help your clients?
