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Aldermore: Four in ten give up being self-employed to get a mortgage

ended 21. October 2024

According to Aldermore’s latest First Time Buyer Index published today, four out of 10 (40%) first-time buyers (FTBs) gave up being self-employed to ensure they could get a mortgage. Do you see this regularly and, with ultra-low mortgage rates gone, affordability harder to achieve and lenders potentially stricter on criteria, is it happening more often as people seek to get that first step on the ladder? Also, if borrowers switch back to self-employment once they are in their new home, one broker has questioned whether this could constitute mortgage fraud. What are your thoughts?

5 responses from the Newspage community

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Justin MoyVerified
Managing Director at EHF Mortgages
Aldemore reports a significant change in employment habits for a mortgage. Over the years, I have seen many attempts to pull the wool over the eyes of a broker and lender with short-term employment purely for mortgage purposes, only to change back to self-employment after completion. We do our best to pick up on this activity and decline to help, or at least ask for evidence from HMRC that their self-employment has ceased. But this highlights the issues of self-employed individuals having to prove income compared to those employed in similar roles, even if being self-employed is likely to be more stable and in control of the applicant over time. A return of self-certification is not what is needed, but we should find better ways to support the self-employed rather than force them to take drastic action such as this.
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Dariusz KarpowiczVerified
Director at Albion Financial Advice
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. 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. The concerning trend of temporarily switching to employment status to secure a mortgage, then reverting to self-employment post-completion, treads dangerous waters. This practice could indeed be viewed as mortgage fraud. It's a risky strategy that could have serious legal and financial consequences, regardless of how tempting it might seem.
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Simon BridglandVerified
Director at Charwin Private Clients
Some first-time buyers are blissfully unaware of the potential fall-out from getting a regular job simply to get a mortgage. If they make the move to employee for genuine reasons, such as income stability, having enough work, regular pay and conditions then great. However, many simply go back to being self-employed after the mortgage is complete. That’s applying under false pretences, or mortgage fraud, and if they were caught it would land them in way more trouble than they realise. If caught and accused for that, then you wouldn’t even get terms from Klarna for your next pizza delivery.
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Elliott CulleyVerified
Director at Switch Mortgage Finance
The market for the self-employed is incredibly one sided towards that of the mortgage lender, so it's no surprise to see some reverting to employed roles to get a mortgage. Mortgage lenders are far more flexible if you are employed and you can usually borrow more than if you were on the same income as someone who was self-employed. There is huge disparity between the two employment statuses and it would be good to see some of the high street lenders tackling this problem.
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Scott Taylor-Barr0
Principal Adviser at Barnsdale Financial Management
There should be no reason someone needs to switch from being self-employed simply to get a mortgage in today’s market. There are lenders able to offer support with just one year of trading; some may even be able to push affordability with a projection of future earnings for certain professions, too. Of course, if you have been a bit too clever, to pay as little tax as possible, it's possible that decision will come back and bite you. If you ask your accountant to reduce your income as much as they can to minimise your tax liability, the other side of that coin is your income is lowered for mortgage purposes, too, and so is your ability to secure a decent level of mortgage.