A Loan for Self-Employed Workers: Is It Any Easier?
It used to be that self-employed workers stood an equal chance of getting a personal loan or mortgage as their salaried counterparts. That was before the financial crash. Since then things have changed dramatically. New Mortgage Market Review rules put in place in 2014 have made sure of that. Some banks have tried to make getting a loan for self-employed workers easier, but there is still much debate over whether they have succeeded or not.
It was less than two years ago that prime minister David Cameron extolled the UK's self-employed workers and contractors saying that the health of the economy relied heavily on their success. Back then, government statistics suggested that as many as 4.6 million people in the UK were self-employed. That amounts to roughly 15% if you're keeping score.
The statistics also showed that the self-employed and seniors over the age of 60 had the hardest time securing loans for any purpose. The problem was this: changes led banks to require the self-employed to verify their income with a documented earnings history of at least three years. Not a big deal, right? Well actually, it is a big deal. Lenders are very fussy about what they will accept as verifiable documentation. The self-employed too often find out they are not keeping meticulous enough records until they are denied a loan.
Banks Loosening Their Requirements
Fairness demands we mention that some banks and building societies have loosened their borrowing requirements since 2014. A few have dispensed with the three-year requirement and are now willing to go with less time if the borrower can prove the existence of a current contract with at least six months remaining along with reasonable prospects after the contract is complete.
As good as this is for contractors, it doesn't help all of the self-employed. Take tradesmen, for example. They don't work on a long-term contract basis. They work from job-to-job, sometimes on a daily or weekly basis, depending how long a project takes to complete. They do not have long-term contracts that they can use to prove financial viability.
Stricter Mortgage Market Review requirements were necessary to address the mess that led up to the financial crisis and housing crash. But the new rules have gone too far in the other direction and are now penalising the self-employed. The best advice anyone could give self-employed business owners and contractors is to keep meticulous records of every single job.
A Stack of Documentation
Banks and building societies have always had an obligation to protect their interests when engaged in the retail lending market. But rule changes now mean they also have a duty to protect borrowers. This is why they are so tough on the self-employed. The best way to counter that is to provide them with a stack of documents and place them on the proverbial loan facilitatorâ??s desk.
If a loan for self-employed individuals requires three years of verifiable income, then present the loan facilitator with every invoice you've printed over the last 36 months. Take bank statements with you to prove your deposits and withdrawals. You might even take copies of your tax records to verify what you have declared to HMRC.
It is unfortunate that it is so difficult to get a loan for self-employed workers. But that is the state of things. Whether you are a small business owner or contractor, your best chances of success for both personal loans and mortgages is to start keeping meticulous records long before you ever intend to apply. When the time comes, you will have the documentation you need to support your application.
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