It is well known within the world of mortgages that getting a mortgage when you’re self-employed can be difficult, but we here at your leading mortgage broker in Manchester, are here to tell you that it doesn’t have to be. With the right amount of evidence and paperwork and the right lenders at our fingertips, we can ensure that you have access to the best the market has to offer in terms of self-employed mortgages.
So, let’s explore just why mortgages for the self-employed are so difficult and what you can do to make the process that little bit easier.
Challenges Those who are Self Employed Face when Getting a Mortgage
Traditionally, those with stable and secure jobs in conventional roles which included employment verification, payslips, and tax returns, found it much easier to get a mortgage as they were perceived as low risk by lenders. Nowadays, with entrepreneurship on the rise, freelancing and self-employment have become more of the norm, which is changing the mortgage landscape and how lenders operate.
While it is more common to get a mortgage being self-employed today, it is still much more difficult and long-winded than if you had the security of employment. One such challenge is that most lenders will require you to provide at least 2 to 3 years of accounts from your business, and if you haven’t been self-employed for that long, it is still possible, but it does get trickier.
Calculating Self-Employed Earnings.
For sole traders, lenders will take an average of your net profit over 2 to 3 years and if you have a limited company, they will look at your share of net profit, your salary, and your dividends. For contractors, in most cases, lenders will take the average of your income of the last few years and if your earnings vary dramatically, they will use the lowest year as a baseline for what you can afford to borrow.
Self-Employment = Higher Mortgage Rates.
Mortgage rates come down to how much you earn, so if you are self-employed and can show that you earn enough to cover the repayments, then you should qualify for the same mortgage rates as someone employed elsewhere. The interest rate you pay should not rely on your employment status, but factors such as the size of your deposit and your credit score.
Extra Documentation Needed.
The same documentation is needed for self-employed individuals as those employed elsewhere, which includes:
- Proof of identity such as your passport.
- Proof of address such as a recent utility bill.
- Evidence of spending habits such as your bank statements from the last 3 to 6 months.
- Evidence of deposit money if not visible on bank statements.
However, extra documentation is needed as further security which includes:
- An SA302 form or a tax year overview form from HMRC for the last 2 to 3 years.
- Certified accounts from the last 2 to 3 years.
- Contractors may need to show evidence of upcoming contracts.
- Company directors may need to provide proof of dividend payments or retained profits.
How to Get a Mortgage if You’re Self-Employed
When self-employed, you apply for the same mortgage as everyone else, you just have to provide more evidence to show you are a reliable earner and spender, to lower the risk that you pose to the lenders. There are numerous ways to improve your chances of getting a good deal when self-employed.
Save, Save, Save
The more money you save, the more opportunities open to you when it comes to finding mortgage deals. Each lender will have different lending criteria, and by using a reputable mortgage advisor, you have the option of finding one that is more favourable to self-employed applicants.
Consider an Accountant
Not a requirement but having an accountant is a bit like a safety blanket for lenders, as having a qualified accountant can be viewed more professionally amongst lenders.
Improve Your Credit Score
Having a good credit score is a gold standard among lenders, as the higher your credit score, the more reliable and responsible you appear to be, therefore the less risk you pose.
Use a Leading Mortgage Advisor in Manchester to Consider all your Options
Every time you apply for a mortgage, your lender will perform a credit search, if the lender rejects you, this will be recorded on your credit file, which in turn can damage your credit score and make it harder to get accepted by other lenders. Using an expert
mortgage advisor in Manchester, like Taylor Made can take away this risk. We understand the market for the self-employed, and we know which lenders are likely to accept applications from self-employed individuals. We also understand that it is not the end of the road if you have been previously rejected.
Contact Taylor Made today to see how we can help. We are a leading mortgage broker based in Manchester and operating throughout the UK.
