First time buyer mortgage for self employed people
In the days before the credit crunch, self-employed people were able to self-certify their earnings in order to obtain a mortgage. These often-dubbed ‘liar loans’ were often easy to get, requiring little or no evidence of earnings. But, from the onset of the crisis, lending criteria became much stricter and self-certification mortgages ceased to exist. As mortgages are harder to get, how can people who are self-employed get a mortgage?
- These are general guides; every lender will have different criteria, different amounts of flexibility and much will also depend on your deposit and credit rating.
- Self-employed people are usually classified if they own more than 20-25 percent of a business.
- If you are self-employed, then any mortgage provider would need to see proof of your income; usually from a qualified accountant.
- If you are a sole trader or partnership the lender will probably take the net profit figure as the income amount. For a limited company, the amount will be salary and dividends.
- An SA302 from the Inland Revenue, is often proof for people who do their own tax returns.
- The amount required is often two or three years proof, but some lenders may be happy to see just one year.
The way that the mortgage application is assessed is usually based on historic profits and incomes, although some lenders might want to see a forecast of the business for the next year or few years ahead.
Income requirements for self employed mortgage applicants
Traditionally, lenders would offer mortgages based on amounts of multiples of salaries; but now lenders tend to offer loans based on affordability, which means that self-employed people should have a clear amount of how much they have to pay a mortgage before applying.
First time buyers fall into this category; the difficulty for them comes if they do not have the required evidence for income. For example, if a first time buyer has only had a business for six months, then it can be difficult for them to get a mortgage and the applicant might have to wait until they have the required amount of records.
The same problems apply to any buyer, not just first-time buyers: proving the income; demonstrating that the business has longevity; showing that there is affordability for the mortgage. But as first time buyers, the biggest challenge could be obtaining the deposit to get the mortgage in the first place. The good news is that the housing market is picking up as lenders are willing to offer affordable products with lower deposits; some as low as ten percent.
How self employed applicants can improve their lending options
There are other things that first time buyers can do to improve their chances of getting a mortgage, especially if they are self-employed. Getting a credit card, using it sparingly and paying it off in full every month is one way to improve a credit rating. Making sure that you are on the electoral roll at your current address is another method of increasing your chances of acceptance. Having a comprehensive set of paperwork linked to the address with no gaps- for the past three years or for however long you have lived there- is another thing that can be done.
Being a first time buyer, who is self-employed, does not exclude you from home ownership. It just means that you need to be alert to the potential problems and able to overcome the small problems-such as missing paperwork- that might prevent acceptance. As the market picks up, and mortgages look to get affordable with smaller deposits, there is no reason to imagine that first time buyers who are also self-employed should be excluded from this.