Buying a property is an exciting process and receiving the keys to your first home is undoubtedly one of the most rewarding feelings. However, it can be more stressful for the self-employed. Getting paid on time can be tricky, and there's not always a guarantee of work, meaning long-term loans like mortgages can be hard to get.
The pandemic certainly hasn't made things any easier for self-employed people either. Some banks and building societies have upped the amount of money that self-employed workers need for a deposit. Low-deposit mortgages disappeared from the market, and people who faced with redundancies and furlough were getting rejected for a mortgage.
As a result, nearly a quarter of self-employed applicants have now packed in their way of working and got an office job to secure a property. So, what's a self-employed worker to do?
Here are five essential tips:
1: Plan in advance and get organised
Generally, banks need a minimum of two completed years of trading and tax documents from self-employed individuals. However, several brokers are now working with an increased number of self-employed borrowers with just one year’s worth of accounts.
Self-employed individuals might also be required to give more information about the nature of their business. To do this, make sure your tax payments are up to date and that your tax returns are submitted on time. Mortgage applications can take a lot of work, so being organised is really important.
2: Consider the importance of a mortgage adviser
The amount of work you'll need to do is significant, and frankly, doing it yourself might not be worth your while.
One thing that most self-employed individuals will know off the top of their heads is their hourly rate. A quick calculation could reveal it might be better to outsource the tenuous parts of the process to an expert adviser.
Mortgage advisers can probably do a better job in a fraction of the time. It might just help keep your bank account, time and general sanity in check over the process.
3: Don't just chase the rates, find the best bank for your needs
There are a few more hurdles to jump over if you're self-employed when it comes to loan applications. Unfortunately, finding a bank that caters to these circumstances is not always the one with the cheapest rates. Every bank has different criteria, affordability and underwriting, so you must find the right one for you, even if that means breaking away from your current bank or building society.
While it might be tempting to apply for the bank with the cheapest interest rate, would-be buyers should shop around and broaden their search. This is where a mortgage adviser plays a pivotal role. Having a mortgage adviser on board can increase your chances of finding the best possible deal as they have whole-of-market experience in searching for current deals.
4: Boost your credit rating
Having the best possible credit file is important when applying for a mortgage - not just for the self-employed. There are three main Credit Reference Agencies in the UK - Equifax, Experian and TransUnion. You and your broker must know what data they hold on you and share with banks.
You can also do some simple things to increase your creditworthiness. One tip is to make sure you're registered to vote, and that your current address is updated for bills and statements.
5: Make sure you're self-employed for at least one year before you apply
When you are self-employed, you become your own business. But, as there’s no guarantee that you’ll get work and a steady income, banks usually want to see that you’ve got a bit of history under your belt.
They’ll be looking to see that you can sustain an income throughout the year and afford your monthly payments. This is why you’ll normally need at least one full year of self-employment, and ideally, a lot more before the banks will consider you. While most banks would require two years as a minimum, a small number of banks will consider an application with a minimum of one-year self-employment coupled with accounts and tax returns finalised and submitted.
If you’re self-employed and looking to purchase a new home, there’s lots you can do to get ahead and we’re here to help.
At Cornerstone Finance, our team have expert knowledge of the property market. Not only can our advisers find you the best rates available, they can also help you navigate the whole process. To find out more, please give us a call on 02921 660 550.