Are offset mortgages set to rise with an increase in self-employment?

Since 2015, the number of self-employed workers in the UK has risen to almost five million.¹ This change in workforce demographics has no doubt altered demand in the mortgage market.

In this blog, we will look at the reasons behind this shift workforce demographics, in the UK. We will also look at how the market is adapting to meet the complex needs of those who are self-employed and seeking a mortgage or remortgage. Finally, we will explore the offset mortgage, and why this could be a good choice for the self-employed.

Change in workforce demographics – Why?

In the UK a significant number of people are leaving their salaried jobs and opting instead for self-employment.² This option seems particularly attractive to those over 65. Research from 5,000 self-employed workers shows that the mean yearly revenue of over 65s in the last year was almost £40,000. This is £7,000 more than the average self-employed salary.³

The research also shows that 67% of self-employed workers of all ages have better life satisfaction, while 68% said that a significant benefit was increased job flexibility.⁴

The decision to switch to being self-employed does not come without its challenges, however. For example, 41% stated that having an unpredictable income was a concern.⁵ Fluctuations in income can sometimes create a challenge for those looking to take out a mortgage while self-employed.

Greater flexibility in the sector

As a self-employed individual, you may think that your mortgage options are limited due to your complex income structure. This may not be the case – increasing demand in this sector is forcing lenders to lower their lending barriers, and have more flexible affordability criteria.⁶

New mortgage lenders are entering into this sector, providing a higher number of mortgage products. For example, a lender has recently opened its doors to self-employed applicants with only one-year trading history, who have only just started working as a contractor, as well as those who have experienced credit problems.⁷

Gaining access to more flexible lending terms

Private banks and niche lenders generally have more flexible lending criteria than High Street banks and may be more willing to take a view on a self-employed mortgage application. Thus, it may be advisable to seek specialist mortgage advice to gain access to such lenders. Specialist mortgage brokers are able to provide you with bespoke solutions and have experience dealing with complex financial circumstances and requirements.

When using a specialist mortgage broker, you will still need to provide all the relevant paperwork yourself, which is usually more complicated than those earning a regular salary⁸. You should begin to prepare your paperwork and finances in advance of your application, to speed up the process.

Offset Mortgages

As a self-employed borrower, you may find that offsetting your mortgage could be a beneficial way of structuring your borrowing.⁹

1. What is an offset mortgage?

Taking out an offset mortgage requires you to open a savings account with the lender. This type of mortgage allows you to reduce your mortgage balance by offsetting it against your savings. For example, if your mortgage was £500,000, and you had savings of £50,000 in your offset account, you would only pay monthly interest on £450,000.

2. Why could this be a good option for the self-employed?

By investing in an offset mortgage, you may be able to reduce the sum which you pay monthly interest on, and potentially pay off your mortgage quicker. This may be a good option to consider while interest rates remain low and your savings account is earning you less interest than it may have previously.

More specifically, this could be a good option for a self-employed worker who needs to save towards their tax bill, as your money will be working efficiently in the offset account.¹⁰

Flexibility is also an advantage of the offset mortgage. It allows you to deposit large sums of money in your account and reduce interest payments as and when you receive it.¹¹ This may benefit self-employed individuals who earn an irregular salary and bonuses.¹²

Read here how we secured a £250,000 remortgage for self-employed clients with a complex income structure.

Your home may be repossessed if you do not keep up repayments on your mortgage

1. http://www.mortgagesolutions.co.uk/better-business/2017/09/28/changing-work-patterns-mean-changing-mortgage-requirements-fleming/
2. http://www.londonlovesbusiness.com/business-news/earning-more-and-working-less-the-rise-of-the-silver-self-employed/17953.article
3. http://www.londonlovesbusiness.com/business-news/earning-more-and-working-less-the-rise-of-the-silver-self-employed/17953.article
4. http://www.londonlovesbusiness.com/business-news/earning-more-and-working-less-the-rise-of-the-silver-self-employed/17953.article
5. http://www.londonlovesbusiness.com/business-news/earning-more-and-working-less-the-rise-of-the-silver-self-employed/17953.article
6. http://www.telegraph.co.uk/money/jessica-investigates/self-employed-can-get-mortgage/
7. http://www.financialreporter.co.uk/mortgages/paradigm-adds-bluestone-to-panel.html
8. https://www.theguardian.com/seizing-opportunities-with-aldermore/2017/may/03/self-employed-and-struggling-to-get-a-mortgage-heres-why
9. http://reference.scottishwidows.co.uk/docs/26995.pdf
10. http://reference.scottishwidows.co.uk/docs/26995.pdf
11. http://reference.scottishwidows.co.uk/docs/26995.pdf
12. http://www.mortgagesolutions.co.uk/better-business/2017/09/28/changing-work-patterns-mean-changing-mortgage-requirements-fleming/