For the large portion of new mothers who freelance, pursuing and successfully claiming a mortgage is another stress added to the already heavy pile of anxiety. But are lenders doing enough to help people in this difficult position?
The current maternity benefits system appears to heavily penalise self-employed women who want to start a family, which is a topic I’ve previously written about for UnderPinned. It is usually tough, if not near-impossible, to keep a business afloat while navigating new motherhood. Freelance mums are often forced to choose between going back to work after minimal maternity leave, or risk seeing a hard-won business go to ground.
And as if that wasn’t bad enough, there’s another area where the odds are seemingly stacked against pregnant female freelancers: obtaining a mortgage.
The Sunday Times recently reported a study by online mortgage broker Trussle, highlighting the difficulty pregnant freelancers can face when house-buying. Many self-employed pregnant women surveyed said they were treated differently when applying for a mortgage. They felt they were often asked ‘unreasonably’ for documentation on when their maternity leave would be ending, for example, and penalised for not giving an exact date of their return to full-time work.
From an outsider’s perspective, this might not seem that unreasonable. Surely it’s not ‘discrimination’ when a lender asks for evidence that a loan is likely to be paid back? Or, is the mortgage industry yet another area that has yet to catch up with the UK’s swiftly changing work landscape, and is punishing one of the biggest groups leading the change – freelance mothers – in the meantime?
On paper at least, pregnant freelancers are lawfully protected against discrimination from mortgage lenders under the Equality Act 2010. Furthermore, all customers – pregnant, self-employed or otherwise – must be treated fairly by lenders, as required by the Financial Conduct Authority.
It appears that many lenders still take the view that traditional employment equals security, and self-employment equals risk, despite there being an element of financial uncertainty for almost any borrower, regardless of work background.
Independent mortgage broker Paul Baggott reiterates this, stating that, in his experience, he has “never known a mortgage lender to refuse anyone based on their maternity or pregnancy”. He also believes that “a lender is not going to discriminate against someone because they are self-employed.” But anyone who has faced rejection from lenders for either reason might think this is a response to toe the party line only.
A recent survey by Trussle found that of 2,002 freelancers, one in five women who had applied for a mortgage when pregnant felt the lender asked for an unreasonable level of paperwork outlining when their maternity leave would be ending, and the same number said they felt their application was treated differently without sufficient proof of their return to a 9-5 job.
Trussle’s wider study also revealed that almost three-quarters of all self-employed would-be borrowers – not just those who are pregnant – found it harder to get a mortgage than if they were employed. In my own case, this was certainly true.
I wasn’t pregnant at the time of my mortgage application, but I was required to provide much more proof of income stability than my partner. The fact that my business had been running for longer than the time he’d been in his employed role was treated as inconsequential. I provided three years’ worth of detailed business accounts; my partner gave his employer’s name and address.
Trussle argues that the mortgage process for self-employed people is ‘inconsistent and confusing’. Lenders use several different ways to determine mortgage affordability for freelancers, which can lead to inaccuracies and incorrect decisions.
Often, self-employed mortgage applicants are required to provide additional documents such as SA203 tax year overviews, in addition to two to three years’ worth of accounts. There must be evidence of stable work history with no employment gaps, while some mortgage companies might only require a verbal confirmation from a pregnant woman that she will return to work in her employed role, self-employed women are often asked for fixed dates and details of the end of their maternity leave.
It appears that many lenders still take the view that traditional employment equals security, and self-employment equals risk, despite there being an element of financial uncertainty for almost any borrower, regardless of work background. Furthermore, as the economic landscape continues to evolve, self-employment can be a more secure option for some.
One self-employed woman, who didn’t want to be named, admits to not disclosing her pregnancy when she applied for a mortgage last year. “I felt like it was already touch-and-go whether I would have a mortgage approved, even though I’ve run a successful online retail business for more than three years.
“I’d heard from other people how it can be a nightmare getting approved when self-employed, plus I knew I’d be asked about my plans for returning to work. At the time, I hadn’t ironed out every detail of my maternity leave; I actually think it’s impossible to do so until baby is born and you figure out what works for you. However, it was highly likely that I’d be back working within weeks, if not days, as there was no way I’d let my business go under. It’s very difficult though to provide concrete proof of all of that, so I kept quiet about the pregnancy. I knew it probably wouldn’t do my application any favours.
“I was eventually approved for a mortgage after spending a very long time going through my accounts and ensuring everything looked watertight.
“Ironically, self-employment makes me a safer bet than if I was still in my old permanent role, in my opinion. A key reason for starting my business in the first place was job security. My previous role in retail looked like it was on shaky ground, and if I’d stayed there it’s likely I’d have been made redundant; perhaps I’d have had several different roles since then.
“If I was still employed, my job could be pulled from me at any moment, whereas I knew I’d be back to work soon after giving birth and making no losses in my business. It’s frustrating that, if I was employed, I’d only have to tell a lender that I would be returning to work permanently on the same terms, and there’d probably be no further questions asked. It seems like a very unbalanced way of doing things, and another example of a system that is negatively weighted against self-employed mums.”
Until public legislation comes into force, are there any tips that freelancers – pregnant or otherwise – should follow to make the mortgage process less painful?
As the old adage goes, it pays to shop around. Not just for the best deals (although we want those too), but because lenders often differ in their requirements for proof of income from freelancers. Paul Baggott said, “Some lenders will only require accounts for one year of trading, whereas there are others that require two or three.”
one in five women who had applied for a mortgage when pregnant felt the lender asked for an unreasonable level of paperwork outlining when their maternity leave would be ending, and the same number said they felt their application was treated differently without sufficient proof of their return to a 9-5 job.
Perhaps unsurprisingly, Baggott doesn’t recommend the non-disclosure of personal circumstances, such as pregnancy. He does suggest working with an independent advisor though (also unsurprisingly).
He said, “It’s an advisor’s job to find a suitable lender for a customer following a detailed fact-find. This includes knowing what a customer’s future costs will be – i.e. childcare costs; any reduction in income, and any additional plans for the future.
“During their application, a customer will be asked if they are aware of any future changes that may affect their ability to repay a mortgage. It’s always advisable to provide a fully accurate disclosure to ensure the correct advice is given – this would include being upfront about pregnancy, as well as providing information on future work plans.
“I understand that it can seem that the mortgage application process requires tons of paperwork and admin, particularly if your circumstances don’t fit a traditional work model, and that it can all feel like a hassle. We may well see changes to the application process in the coming years, but for now, applicants should continue to ensure they’re as prepared as possible with up-to-date records and information. Some might see it as having to jump through hoops but it’s in their best interest to do so.”
‘Jumping through hoops’ to obtain the same level of support received by employed workers as standard can seem like part and parcel of the freelance game. It’s, therefore, encouraging to hear of companies like Trussle and Habito, which are promising to innovate the industry and appeal to a UK workforce that, in recent decades, has changed beyond recognition to now include a record five million self-employed people.
Unfortunately, innovation doesn’t occur overnight. The mortgage industry has, so far, been slow to adapt to the new work landscape, much like the benefits system has, for example – both to the detriment of freelance mothers.
So for now, we wait for them to catch up. And prepare to jump through a few more hoops while they do.