Unsecured debt increases for a third of self-employed

Lenders urged to take a ‘flexible approach’ as one third of self-employed increase unsecured debt

Unsecured debt, including personal loans, credit cards and overdrafts, have risen by an average of £2,312 over the last year among self-employed people, according to research by The Mortgage Lender (TML). 

The survey, of 1,000 current and aspiring homeowners who are all self-employed, found that one third had increased their unsecured debt. This follows recent news that the pandemic has seen 2 in 5 freelancers lose 40% of their income.

A quarter of survey participants (25%) had taken a mortgage payment deferral, with 16 per cent reporting taking a break of up to three months. While nearly one in ten (9%) had deferred payments between four and six months.

Growing debt means more than half wouldn’t be able to borrow current mortgage

The poll also found that although the majority (81%) of self-employed people kept up with payments on their unsecured debts, nine per cent missed credit card payments, five per cent reported unpaid personal loans and almost one in ten (8%) failed to make payments on other debt.

When asked about their experience of the pandemic, 60 per cent of respondents said they felt it was worse than an employee’s with many claiming they did not receive any financial support from the government whatsoever.

In its report, TML stated that because of the “deterioration” in their finances, more than half (55%) of self-employed people would not be able to borrow the amount they currently owe on their mortgage when taking into account last year’s earnings.

Steve Griffiths, Sales and Product Director at TML, said: “The last year has been hard for everyone, but the self-employed feel as if they have been disproportionately hit by the pandemic, increasing personal debt and deferring mortgage payments just to get by.

“Nevertheless, there are millions of self-employed people contributing to the economy and the economic recovery.

Fear self-employed could be ‘locked out’ of housing market

“It’s vitally important there is a thriving, competitive specialist mortgage sector that is able to provide criteria and products that meet the needs of this segment of the population to prevent them from being locked out of the housing market or trapped in a home that no longer meets their needs.”

Jane Tully, Director of External Affairs and Partnerships at the Money Advice Trust – the charity that runs Business Debtline – echoed Griffiths’ concerns about the self-employed being “particularly hard hit” by the pandemic.

Business uncertainty still impacting self-employed 

She said: “The drop in income experienced by many at the start of the outbreak is still having an impact now, with volatility in trade and uncertainty about the future continuing to affect businesses.”

Previous research by Business Debtline revealed that almost twice as many self-employed people last year had fallen behind on household bills compared to business bills, because of Covid.

Tully added: “There is often an overlap between personal and business finances which can lead to household finances bearing the brunt of financial shocks.  

 “It is vital that creditors take this into account when dealing with self-employed people who fall behind on repayments. Firms need to offer specific forbearance measures and take a flexible approach in cases like these, where self-employed people are struggling.”