Self Employed Mortgages

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Self Employed Mortgages - What You Need To Know

It’s a question people ask all the time because an applicant’s job status and security impact their application. Being self-employed means that you don’t always have the same job security as someone permanently employed, so some lenders can be less welcoming.

However, the good news is, you can get a mortgage as a self-employed person. In fact, most specialist home loans for self-employed people are standard agreements. The truth is, there is no specific type of mortgage deal for the self-employed as the self-certification option was banned in 2011 by the Financial Conduct Authority (FCA).

Of the estimated 4,000 mortgages on the market, 97% of them are available to people who work for themselves. The only difference is how you prove your income in comparison to a PAYE applicant.

How Will Your Self-Employed Application Be Assessed?

A lender uses a range of information to assess your mortgage application. They are:

  • Previous income
  • Average revenue
  • Legal status

The first two features depend on the bank and the criteria it uses. For example, some creditors go off five to six years of trading information, whereas others will use two or three. If you are a CIS subcontractor, you could be assessed on just 6 months worth of payslips. Therefore, it can be best to speak to a broker to understand the best route to getting a mortgage.

Your legal status can be broken into three categories – sole trader, partnership, and limited company. Whichever one you fall into will decide the size of your home loan. For instance, a sole trader is a one-man band and must fill out an SA302 form to highlight total income and tax paid. On the other hand, a partnership means that only your side of the business will be analysed.

How Do You Improve Your Chances Of Being Accepted By A Lender?

The first thing to note is that you’re just as likely to get a healthy mortgage offer if you’re self-employed as a person in a full-time, permanent position. All you require is the following:

  • A good deposit
  • A strong credit rating
  • Evidence that your income will cover the repayments

Of course, not everyone can evidence the features above, which is why it can be scary applying for a self-employed mortgage. But, there’s no need to worry as you could improve the odds of being accepted by the lender. Here are the top tips that you should keep in mind.

Lean on Your Spouse

Usually, two people will apply for a mortgage since the cost of owning a home is very high. In this case, you can put your partner’s name first if they are salaried and are employed full-time. This is a healthy sign to a bank or lender as it shows that the lead person on the application should have a steady flow of income to cover any gaps if they occur.

Boost Your Revenues

If lenders say that money is a problem, you need to focus on increasing your earning power. With bigger revenues, you can highlight how much money you make on average and erase the doubts. You don’t always have to take on new clients. For instance, paying yourself a higher dividend helps your application as banks may consider dividends.

Hire an Accountant

Two years of accounts are the minimum some lenders will accept. The most recent has to be less than eighteen months old, too. If keeping records isn’t your strong suit, it’s wise to invest in a professional accountant to ensure the books are immaculate. Not only will it make the process quicker as the information will be easier to find, but professional records reflect well on self-employed owners.

Increase the Deposit

A bigger deposit eliminates doubts and lowers your monthly premiums. Of course, the required funds aren’t straightforward to find, which is why boosting your deposit can be challenging.

Remember there are bands in which interest rates are applied. By increasing your deposit, it could put you in a lower LTV band, offering you a lower, perhaps more affordable interest rate.

There are plenty of ways to improve your chances and secure a self-employed mortgage, from fixing your credit score to speaking to a broker for specialist help.

How Can a Mortgage Broker Help You if You're Self-Employed?

Mortgages brokers rely on their experience to search the market for suitable deals. Peace of mind is one thing, but so is avoiding application rejections as they can impact your credit rating. With a broker, you’ll receive a selection of tailored deals to choose from. As a result, the process is smooth and hassle-free, and the odds of being accepted as much higher.

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