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Self-Employed Mortgages - what you need to know
Securing a mortgage is something that many will aim to do in life. It can provide you with the means to build an investment that you can enjoy in the future. Being self-employed has its challenges. Although it’s possible, it is trickier for those who are in this industry to secure a mortgage.
You may wonder, are there mortgages out there for those who are self-employed. The answer is no, you’re in the same boat as everyone else, it’s just that you’re going to have to paddle harder to get it.
What Do You Need To Get A Mortgage?
It’s best to start off with the basics and that is what you need to get a mortgage in the first place. You’ll need to have at least two years’ of accounts or tax returns. The more you can show, the better it will be to improve your chances of securing a lender.
It’s worth having an accountant if possible unless you are your own accountant of course. As well as your accounts and proof of income, you’ll need a healthy deposit to put down too. You’ll also need a good credit history
This combined will influence which lenders are willing to lend to you and how much they’re willing to lend.
How Do you Improve Your Chances Of Acceptance By A Lender?
To get the green light from a lender, there are certain things that you can do to improve your chances. Having a good track record of work is beneficial. It shows the lender that you have had repeat business. Whether it’s been with the same clients or not is beside the point.
That consistency is going to put trust in the lender that you will be able to pay back your mortgage. It’s worth trying to be consistent in the work you get in your self-employment right now and in the future too.
The deposit is something you need to get before you even think about getting a mortgage. The amount of deposit you have will also influence the price of the property you will be able to afford. It’s worth using a mortgage calculator to work out how much you need to save. The bigger the deposit you have, the better chance you have at getting a mortgage. Don’t rely on a calculator alone as it will not always give you the full picture – speaking to a mortgage broker they can give you more detail about the fees and T&C’s of a mortgage.
A good credit history can help in improving your chances of getting approved by a lender. It shows your ability to borrow and pay back the money, which is key when it comes to a mortgage.
If you’ve got any outstanding debts, then you might want to pay these off, credit cards and finance deals for example. Then you can run a credit check. You can check your credit score through a credit reference agency e.g. Equifax, Experian, Transunion and Crediva, or Check My File, who cross references all four. Most checks will come with an outline of things you are doing well and things you can improve.
How Can A Mortgage Broker Help You If You Are Self-Employed?
Applying for a mortgage when you are self employed will not mean you get different mortgage options to those who are PAYE applicants. The difference is in how you are able to prove your income to potential lenders.
Mortgage Brokers are able to assist you in navigating through the required information to build you a stronger application and give you access to lenders who may be more sympathetic to your employment situation.
How Is Your Self Employed Application Assessed
Depending on how you are set up in self-employment, will determine how your mortgage application is managed. You have three business structures that you’re likely to be under. These are sole trader, partnership, and a limited company. It’s worth knowing what your application process will be depending on what you’re defined as.
Sole Trader – Sole traders are those who work on their own. They do everything and anything so it means keeping your accounts and records in order is easy.
When you do a tax return, you’ll do a self-assessment through HMRC. This will be something that’s given to the lender, along with accounts to review your application.
Partnership – A partnership is where you are working with someone as a business. When you’re applying for a mortgage, the lender will look at each partner’s share of profits. That means that you will need your accounts to show how much you’ve made as an annual income.
Getting an accountant to get your records in order is essential. It is worth doing if you don’t find it easy to do yourself. It’s also a cost you can share as a partnership.
Limited Company – With a limited company, you keep your business separate. A limited company will usually have one director at least and sometimes a secretary.
Directors will pay themselves a basic salary and dividend payments. The lender needs these to help assess the mortgage and what you can afford.
Frequently Asked Questions
Can I get a mortgage with a bad credit history?
There are different factors that can influence your credit rating. Some might be less of a problem than others. If your credit issue is on the smaller side, then some lenders may offer you a mortgage deal regardless. It’s something that would be a case-by-case consideration.
What if I have less than two years of accounts?
There are specialist lenders that can help with those who have less than two years of accounts. Sometimes it’s not possible to wait any longer. But, to give yourself the best mortgage option, it’s worth holding out until you have two years’ worth of accounts. This will give you the best lender available for your needs.
How much of a deposit is usually needed?
5%-10% is usually needed for those who are looking for a mortgage for the first time. It can differ depending on the lender and how your income affects the price of the property you can afford. It’s important to save as much as you can.
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE