Self Employed Mortgages
A fair few of these will have successfully applied for a mortgage at some point during the last 10 years, so it’s surprising that there’s still a perception that it’s harder to get a mortgage if you’re self-employed.
In our handy guide to securing a mortgage offer if you’re self-employed, we’ll show you how simple it can be with some thought, preparation and an experienced self-employed mortgage specialist to guide you. So getting the go ahead on your mortgage application first time could be a lot easier than you might have been led to believe.
What Is A ‘Self-Employed’ Mortgage?
First off, let’s dispel the myth. There is actually no such thing as a ‘self-employed’ mortgage. However, you might have heard of ‘self-certification mortgages’ which were widely sold over a decade ago, before they were withdrawn in 2009.
The mortgage product you apply for today will be exactly the same as the mortgage an employed person applies for. The only difference for you as a self-employed applicant, is the way you prove your income to a lender.
How Mortgage Lenders Assess Self-Employed Applicants
The first thing a mortgage lender will want to know is the type of self-employed business structure you work in, so they know which information to ask you for.
So, are you a Sole Trader or do you operate in Partnership with a business colleague, or are you the Director of your own Limited Company? In all cases you will be asked for proof of your income.
If You’re A Sole Trader
As a Sole Trader you are your business and you control the amount of money you pay yourself each month. A lender will want to know how much income you generate annually, based on your accounts. Most lenders use tax calculations and tax overviews to establish this information.
If Your Business Is A Partnership
Lenders usually treat income from a Partnership business the same way as a Sole Trader and will want to see your personal share of the company profits.
If You’re The Director Of Your Limited company
As director of your own limited company, your personal income is separate to your business income. You’re also classed an employee in your own business because you receive a modest monthly salary and take dividends from your business as additional earnings.
Lenders will be interested in how much basic salary you take and the amount of dividend you pay yourself each year. They will use this to decide how much you can afford to borrow.
The way lenders look at your limited company accounts can differ. Some will be interested in your personal salary and dividends, while others will want to know more about the retained profit in your business.
An experienced Mortgage Adviser will know which lenders to approach based on their criteria and your individual financial circumstances.
Letting your Spouse Take The Lead If You Can’t
If you’ve only been self-employed for less than a year and can’t match the income criteria, if you’re buying a property with a partner who has a PAYE job, why not let them take the lead on the mortgage application instead of you? Even if their income isn’t as much as yours, their regular salary may be enough to clinch a mortgage offer.
Boosting Your Chances
Here are some of the things you can do to boost your chances of securing a great mortgage offer before you start your search:
- Ask a specialist self-employed Mortgage Broker to help you
- Start saving for your deposit
- Keep your spending to a minimum – this will help when submitting your bank statements
- Avoid making major business decisions that may affect the way your income is viewed – like changing your status from Sole Trader to a Limited Company
- Check your name and address is on the Electoral Roll
- Sort out your credit rating by clearing any unpaid debt, keep a check on your credit score and pay your bills before the due date.
How Much Deposit Should I Put Down?
The rule of thumb is that more is always better. A larger deposit gives you a wider choice of lender, the lowest interest rates and therefore smaller mortgage repayments. This is how the deposit bands are rated:
- 10% minimum deposit – will limit the number of options available to you
- 15% is the current preferred minimum from most lenders
- 25% deposit plus – very good
- 40% put down on your property – excellent
How can a Mortgage Broker Help?
Having a specialist Mortgage Adviser with years of experience to help you is worth every penny and can save your hours of tedious searching.
A Mortgage Adviser’s job is to guide you through your mortgage application and improve your chances of being approved first time.
Only approach Mortgage Brokers who are authorised and regulated by the financial authority and registered in England. A good broker will work across the whole of the market and offer unbiased advice to make sure you have a choice of mortgage deals, products and lenders to suit self-employed applicants.