Giving up on the dream: Is the UK mortgage market killing self-employment?

“When 40% of first-time buyers are ditching their entrepreneurial dreams just to secure a mortgage, we know something’s seriously amiss in the lending world,” says Dariusz Karpowicz, Director at Albion Financial Advice.

Karpowicz says the challenge has always been particularly acute for self-employed individuals, especially those with high business costs and variable incomes.

“Lenders’ strict affordability criteria, combined with the way self-employed income is assessed for tax purposes, often results in significantly reduced borrowing capacity,” he says.

Karpowicz points out a concerning trend. “Temporarily switching to employment status to secure a mortgage, then reverting to self-employment post-completion, treads dangerous waters,” he warns.

“This practice could indeed be viewed as mortgage fraud - obtaining a loan under false pretences. It’s a risky strategy that could have serious legal and financial consequences, regardless of how tempting it might seem,” says Karpowicz.

Karpowicz agrees change is needed. “Being self-employed and seeking a mortgage is like playing Snakes and Ladders blindfolded - just when you think you’re climbing up, you might slide right back down! The fact that 40% of entrepreneurs are ditching their dreams for a mortgage is simply staggering.”

He says the issue isn’t really about lenders discriminating against the self-employed; it’s more about the “challenge of assessing variable incomes in a system designed for predictable PAYE earnings.”

“While umbrella company contractors might get an easier ride due to their PAYE-like income structure, limited company directors often face tougher scrutiny despite potentially being more financially stable,” he says.

Karpowicz continues, “Looking ahead, what we really need isn’t just tweaks to the current system, but a complete rethink of how we assess self-employed income. The upcoming budget might not revolutionise things overnight, but there’s definitely room for innovation in how lenders evaluate self-employed applicants.”