Posted on 4.5.17
There have never been more self-employed people in the UK than there is today…
The numbers have risen rapidly in the last 5 years, but despite this, the mortgage market has failed to adapt as self-employed people continue to struggle in getting a foot on the housing ladder.
Long gone are days of self-certification mortgages where, in a nutshell, all you needed to do to satisfy your lender was tell them you could afford it. As you can imagine, these so called ‘liar loans’ were widely abused and subsequently banned in the UK in 2011.
Due to new affordability rules introduced by the Financial Conduct Authority in 2014, the harsh truth for self-employed wannabe home owners is that whilst your income falls under the ‘non-standard’ bracket, lenders will always be cautious, especially if your business is young and perceived to be not well established.
Although you may know you can afford the mortgage, the lender does not. Lenders can find it hard to adequately assess you due to the fact self-employed covers a range of different levels of income and types of businesses.
What is on offer?
You will have access to all the same mortgage products as a regular home buyer, so long as you can jump through the extra hoops to prove your income.
There are few specialist lenders who offer products specifically for the self-employed so it’s worth doing your research. But mainstream mortgage lenders also routinely lend to the self-employed, so you may not need to use a specialist.
How to improve your prospects?
Do: Keep detailed accounts and records of your financial transactions
Lenders will typically base how much they are willing to loan out to you based on your average income over the past 2 (this may vary from lender to lender)…
Keep thorough, up to date accounts. You may want to consider hiring a chartered or certified accountant to help prepare these for you, especially as some Lenders insist that your accounts are managed by a certified or chartered accountant. Make sure you are familiar with the figures and that you understand them, as you may be called upon to explain any income fluctuations and being able to answer these questions accurately and concisely will stand you in a better position.
If you do not have 2 years of accounts don’t worry, you may be allowed to provide a track record of regular work and/or proof of consistent work lined up for the future instead.
Also, some lenders may often prefer SA302s and an accountant’s reference to standard accounts as proof of income.
Do: Speak to a (preferably independent) Mortgage Adviser
Especially if you can find one who specialises in self-employed applicants…
A mortgage broker will know which lenders are more receptive to your employment status and can help you prepare your loan application accordingly, because after all, applying for a mortgage application and having it rejected will be recorded on your credit file and in turn can damage your credit score.
Seeking professional mortgage advice will help you get it right the first time.
Do: Bolster your income
Retaining profit within your business is sensible and a sign of a responsible business owner…
However, it doesn’t necessarily demonstrate a healthy income which is what your lender may be looking for.
Consider paying yourself a higher dividend prior to applying for the mortgage to help strengthen your application.
Don’t: Be discouraged
Every lender is different…
Certain lenders are more willing and/or specialised to deal with self-employed applicants than others.
One lender might focus purely on salary and dividends, while another may make their decision based on your operating profit and retained profits.
The more flexible lenders will take retained profits into consideration when making their lending decision.
No two lenders are the same, find the one that suits your circumstances.
Don’t: Make Any Major changes to your business
The primary reason it’s difficult for you to get a mortgage is the instability of self-employment…
Therefore, postpone making any major changes to the structure of your business or anything that could greatly impact your finances in the present. If a situation where a change is unavoidable, consider giving things time to settle down before applying for your mortgage.
Do: Some Financial ‘Spring Cleaning’.
Watch your spending habits in the year before you apply, take care of as many outstanding debts as you can, make sure your credit report is correct with no incorrect entries and make sure you are signed onto the electoral roll. All of these will play a part in the potential success of your application.
Once you are successful in your mortgage application, you will need to instruct a solicitor to handle your purchase.
At Gorvins, we have a large, full service conveyancing team who specialise in assisting buyers from all walks of life.
Get in touch today on 0161 930 5151 or email e-mail email@example.com or fill out our online contact form for a free, no-obligation and confidential discussion about your property.
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