Since the financial crisis took hold, it has become increasingly challenging for first time buyers and homemovers alike to secure a mortgage, resulting from stringent affordability rules. However, there has been one segment of the market which has suffered more than many, the self employed.
Known as “self-certification” mortgages, they were primarily designed for freelancers, contractors and business owners. Previously a borrower did not have to provide any evidence of income, they simply declared how much they were earning.
Applications were then put through the system with few checks being made, resulting in the process becoming abused with many applicants untruthfully declaring their income to gain larger home loans. Inevitably these types of mortgages were subsequently banned which now presents many challenges for the self employed market.
Getting a self employed mortgage is still a tricky business, but not impossible, you just need to overcome more hurdles in contrast to an individual who is a company employee on a monthly salary.
With that being said, the following four points can act as a guide to increase your chances in successfully securing a home loan.
Get your accounts in order
One crucial step for the those who work for themselves and have set up their own business, (whether you are a partner, sole trader or limited company) is successfully demonstrating your income to any mortgage lender.
The majority of high street lenders will require to see at least two years accounts or tax returns. So organisation and keeping your figures up to date is vital and will stand you in good stead. Hiring an accountant will win you favour with most lenders, however they prefer them to be certified or chartered, so this is something to bear in mind when you come to select one.
Not having accounts stretching back over a two year period is not the end of the world, some providers will still consider your application if you can prove a credible pattern of regular work, you’ve left employment to contract in your industry or you have future employment in place.
Maintain a good credit record
Having a good credit record will be music to most lender’s ears and will undoubtedly increase your chances of getting a mortgage. A lender will not simply run a check against your credit history, they will also conduct one against your business and essentially your business address.
It could not be more important to ensure all late or unpaid debts are in order and it could also be worth having a look at the credit report for peace of mind, as well as making sure there are no errors that could hinder your mortgage application.
Make sure you can evidence your income
It is essential to make sure you understand and are able to talk through your numbers to the lender if the situation ever arises during the mortgage process. One notable example could be a reduction in income at a certain point, where you may need to explain the reasons behind this. Being able to explain any variances is a lot more credible and is more likely to impress and strengthen your chances of a successful home loan.
To add to this, there are a couple of scenarios you may encounter when evidencing your income. Previously, you and your accountant would have been eager to limit the amount of taxable income in order to pay less tax. Although this is perfectly acceptable, this could work against you when applying for a mortgage as all of a sudden you will need to demonstrate as much income as you possibly can.
The second point to take into account applies if you are a director of a limited company. You may have profits which you wish to hold within your company as opposed to taking out as a salary or dividend.
Some high street providers will take into consideration “retained profits”, however some may not. As a result some directors of a company may find it more challenging in securing a mortgage than most. The good news is there are lenders out there who will look at “retained profits” and making use of a financial advisor is highly recommended to find these types of lenders and the options you have at your disposal.
Seek out Financial Advice
Making use of a mortgage advisor shouldn’t be overlooked or underestimated. As they know the market better than anybody, they will know which lenders will take into account “retained profits” and which ones offer flexibility in terms of the number of years of accounts needed to satisfy lending requirements. Crucially, a mortgage advisor will find you the best mortgage rate out there to accommodate your lifestyle and financial circumstances.
Alternatively, if you require borrowing on a larger scale, for example £500,000, there are mortgage deals offered by private banks, such as Coutts which your financial advisor can look into on your behalf.
There is no doubt that post financial crisis, getting a mortgage for the self employed is indeed a tricky business with many potential hoops to jump through. With that being said, there are flexible lenders out there who are more than willing to accommodate and recognise the self employed as an up and coming market.
First Mortgage is a leading Mortgage broker providing free mortgage advice across the UK.