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What is a Self-Employed Mortgage?
If you are self-employed you can access the same mortgage products that everyone else can, there is no specific mortgage just because you are self-employed. The difference is in how you prove your income to a lender in comparison to a PAYE employed borrower. Mortgage lenders are actually becoming more and more flexible towards the self-employed.
How will your Self-Employed Mortgage application be assessed?
Mortgage lenders will look into your mortgage application and will want to ensure you can afford the monthly repayments on your mortgage. This will mean lenders will look at your credit score and credit history and look into your earnings. You should be prepared to provide at least three years worth of accounts to prove your income alongside your tax forms.
The way that you will be assessed will depend upon the type of self-employed that you are. There are typically three types of self-employed, sole trader, partnership and limited companies.
If you prefer to work alone, you should declare your earnings on a self-assessment form through a qualified accountant. Your tax will then be calculated by HMRC and you will need an SA302 form to outline your total income and tax paid. You will need three years’ worth of these accounts to give alongside your mortgage application.
Partnerships will require you to provide the figure of your share of the net profits alongside proof as well as any retained profits. Some lenders will not factor in retained profits so ensure to check the lenders criteria.
It has become more and more popular to apply as a Limited Company. A mortgage lender will require to see your Director’s salary and any dividends received and stated on accounts or references.
How much can I borrow?
The amount that you are able to borrow from a lender will greatly rely upon your own current financial circumstances and history. A mortgage lender will look into your credit history and if you have a good credit rating you can typically access up to five times your annual salary.
There are specialist lenders out there who can and will cater towards the self-employed even those with bad credit ratings, but they are not always easy to find. It would be worth getting in contact with a Mortgage Broker if you do not know where to begin or do not have the best credit.
What deposit will I need?
You should be prepared to provide at least 10% of the property’s value in the form of a deposit. If you are a first-time buyer or purchasing a new build then you can use Government schemes to access the lower deposit option of 5% of the property’s value.
The more of a deposit that you can provide upfront to a lender the better! Lenders are more likely to give lower rates and discounted rates if you can give them more capital upfront before moving into the property.
How do you improve your chances of being accepted by a Lender?
There are a few things that you can do to try and boost your chances of hearing that ‘yes’ from your chosen lender. You should apply at the right time, ensure that your credit is in check and try to provide as much of a deposit as you possibly can.
Apply at the right time
If you are self-employed you will be asked to provide at least three years’ worth of accounts. Don’t worry if you only have one or two year accounts, there are lenders out there who will accept less than three. You can find specialist lenders if you do not have three yearly accounts, however it can be worth waiting to apply for a mortgage.
If you have outstanding debts to pay it would be worth trying to get these in check before applying for a mortgage. If you have a lower credit score you could miss out on lower interest rates.
Ensure your credit is in check
Mortgage lenders are going to look into your credit and bank statements to ensure that you are a reliable borrower. You need to make sure that you have kept up with your monthly outgoings and closed any unused accounts, such as mobile phones or credit cards. Keep yourself up to date on the Electoral Register.
Provide as much of a deposit as you can
The bigger the deposit that you can provide – the better. If you can give a bigger deposit upfront you are more likely to sway a lender towards accepting your mortgage application.
Every mortgage lender is completely different and will have different criteria to fit. It is important to make sure that you look into the requirements from your lender before making your application. You need to make sure you can afford the mortgage you are applying for as if you cannot afford your mortgage repayment then your home may be repossessed.
How can a Mortgage Broker Help?
A Mortgage Broker can help you with your mortgage application, from finding the right lender right up to the application being accepted. Mortgage Brokers have access to the whole of the mortgage market and can access lenders that are not on the high street.
They can look into your finances and tailor the advice they give based upon your situation. There are lenders out there who will offer exclusive deals to self-employed people and who will offer broker exclusive deals if you approach them through a broker.
A Mortgage Broker is authorised and regulated by the Financial Conduct Authority but there are some products out there which aren’t and can be used by the self-employed applicants yet it is important to ensure that everything is legitimate, which a broker can help you to do.
Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.