Finding it difficult to get a mortgage if you’re self-employed is a common problem – and one that has become yet more prevalent since the Financial Conduct Authority banned the self-certification mortgage in 2014.
The changes introduced by the FCA have had a real effect on the ability of self-employed workers to easily obtain a mortgage, or remortgage an existing home. Most lenders will now only consider self-employed applicants if they can provide at least three years of accounts or three years of income that has been reported to Revenue & Customs; previously, individuals could borrow without needing to prove their income through a self-certification mortgage. However, they were removed from the market after the FCA declared them to be too risky for the consumer.
The increasing use of computers in the industry has meant that the decision whether or not to give a mortgage is now made by a machine, rather than an employee with the ability to use their own discretion. Now, the reality is that many people setting up in business can find themselves excluded from getting a home loan.
“If you’re self-employed it can be much harder to get a mortgage,” explained mortgage adviser Matthew Graves, of Linear Financial Solutions.
“You may not have a regular income paying the same amount every month. This can make a lender feel uncertain as to whether you will actually be able to afford your mortgage repayments.”
However, getting a mortgage as a self-employed worker is not impossible.
Shop around
Although this one may seem obvious, digging a little deeper into the mortgage industry will really boost your chances. If you recently became self-employed, try lenders like Aldermore, Kensington, Kent Reliance and Precise, who only ask for one year of accounts.
Using online brokers to find a better deal – but use a site that compares as many as possible, rather than just the companies they have links with. The Money Advice Service offers a comprehensive list, as well as MoneySupermarket. Lesser known, newer online lenders such as Trussle are also worth a look, and may have less stringent requirements.
However, it is worth remembering that will less mainstream lenders you may need a higher deposit – around 20 percent – and may pay a higher interest rate.
Consider an offset mortgage
An offset mortgage links your savings, and in some instances your current account, to your mortgage meaning that instead of earning interest on your savings account, it goes towards your mortgage payments.
Offset mortgages are relatively uncommon, only accounting for about 6 percent of the total mortgages. However with savings rates at rock bottom now that the Bank of England has slashed the base rate further, they may be set to become more common.
Keep on top of your finances
In order to make it easier for lenders to assess you, keep all your accounts in order. Apply for a form from HM Revenue & Customs – the SA302 – declaring your income tax for the last couple of years and have that ready to hand to any mortgage provider.
Providers also take into account your regular expenses, so try cutting down the year before you apply. This includes food bills, telephone bills, school bills and maintenance payments.