27 May 2023

Integrating technology to help self-employed buyers get a mortgage?

By MPowered Mortgages

It’s no secret that self-employed workers find it more difficult to secure a mortgage than people with more traditional incomes. With many self-employed applicants feeling that their mortgage lender didn’t understand their earning capabilities, research tells us that those who are self-employed are disproportionately more likely to have their application refused.

Why is it harder for those with self-employed income to get a mortgage?

When assessing an applicant, a lender will always consider how much they’re earning, and how likely they are to sustain those earnings to make the monthly repayments. As self-employed workers will often have irregular or more complex income, which can be trickier to evidence, they are deemed to be potentially higher risk applicants by lenders, and are therefore subjected to more thorough checks than salaried employees.

For example, many lenders will request that self-employed borrowers provide up to two years of tax returns or finalised accounts, whereas those in a salaried role need only provide the last three months’ payslips.

And whilst, generally speaking, the same mortgage products are available to the self-employed, they are often faced with a more complex underwrite. Often, more documentation is required, meaning the verification of documents and assessment of risk, and therefore the whole application process, can take longer.

Can technology take the complexity out of the mortgage process for self-employed?

Using advanced technology and AI to improve the efficiency of the mortgage process will lead to better outcomes for all customers, regardless of their income stream. However, by automating aspects of the application journey, and using technology to enable rapid data extraction and document verification, the ability to offer speed and certainty to self-employed applicants becomes a reality.

Technology can help with case packaging, informing the broker and the client exactly what will be needed upfront. For example, at MPowered Mortgages, the application of AI facilitates our real-time underwriting. By extracting the data from uploaded documents, and verifying them instantly, brokers will know if any documents need replacing, or if any additional documents are required, at the point of submission. This reduces a significant amount of unnecessary back and forth between broker and underwriter, meaning the assessment of risk can begin earlier.  

Further to this, integrating tech into the mortgage application process can allow for instant criteria checks. For instance, at MPowered, we use automation to cross-reference applicant data against our lending policy as soon as it’s keyed on our application form, prior to submission. This means a broker will be informed straight away if their client will not fit our criteria, meaning they can review other options, and make any necessary changes to the application sooner.

Looking forward - what more can lenders be doing?

Although the benefits are clear, there is still much more that can be achieved by further integrating technology and AI into the mortgage process. One of the main struggles' lenders face when dealing with self-employed applicants is the many different ways income can be evidenced. Is the client a sole trader, and simply submitting a self-assessment each year? Do they own a limited company from which they take a salary and dividends, or have they formed an umbrella company, paying themselves through PAYE, whilst still being self-employed? Often, a combination is the answer, only adding to the complexity of the application.

Verifying these various income streams, and their sustainability, can be a timely process for lenders, but this is where automation can play a crucial role. Already, automation can be used to extract data from Companies House about a company, its directors, the nature of the business, and how long it’s been formed. HMRC has existing API documentation which, hopefully in the future, could be used to extract data from accounts to prove income. The same could potentially be done for SA302’s or umbrella company payslips using AI. Open banking is already used in some mortgage applications, and by applying the same technology to business bank accounts, lenders could support the application of a business owner without a broker having to source these additional documents.

The amount of documentation a broker is required to obtain becomes significantly less if lenders can acquire it from a third party, and technology can be used to do this very quickly. From this, we can conclude that whilst the integration of technology into the mortgage application process won’t necessarily improve the chances of a self-employed worker's mortgage application being accepted, the other benefits cannot be disputed. Less packaging improves both the ease and speed of the application process, giving brokers more time to focus on advising their client, and finding them the best deal for their circumstances, highlighting how collaboration between humans and technology results in the best customer outcomes.

Emma Hollingworth, Managing Director of Mortgages at MPowered Mortgages

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