We have been led to believe that if you are ‘self-employed’ getting a mortgage is a mammoth task and virtually impossible, therefore needing to approach the task of finding a mortgage with an air of pessimism and hopelessness.
However, that’s not normally the case, there are some excellent deals out there for the self-employed as long as you know where to look and how to go about it.
A quick reality check
Although there are now several million self-employed people in the UK, some lenders may still be a little more onerous with their requirements when trying to evidence a self-employed applicants income position versus that of conventional salaried employees.
Fortunately, these mortgage lenders are today relatively few in number, and most now welcome applications from the self-employed, and we here at Cornerstone Finance know exactly where to look.
However, there are a few realities you will need to accept and consider from the outset:
- You will need to provide evidence of your income over a set period of time, normally a minimum of 2yrs. As you will not be in receipt of payslips you are going to have to have your figures prepared by a qualified accountant or provide your self-assessment tax returns.
- If you have recently gone self-employed and can’t show a full 12mths trading, the number of lenders at your disposal will be reduced and your mortgage is likely to cost you more than it would for employed borrowers or those with a longer trading history.
- You may have to accept a higher degree of scrutiny of your overall finances than that of a salaried person.
However, not all of these are showstoppers – and this is how to go about positioning yourself to secure a mortgage if you are self-employed.
Tips for obtaining a mortgage
If your self-employed and looking for a mortgage, then prepare in advance by:
- Making sure you have at least one year’s, but preferably two or three years’ accounts (or tax returns, previously known as SA302’s) available to show your turnover, tax paid and related financial status.
- Ideally having accounts that are certified. If you’ve never done so before under simplified accounting procedures, think about doing so for your next set of accounts.
- Having evidence of your tax payments to HMRC. Copies of your more recent SA302’s and tax summaries are a great help. (These now come in 2 parts as a download from HMRC including the ‘Tax Overview’ and supporting ‘Tax Calculations’ normally available from your accountant).
- Keep the “warning lights” or ‘red flags’ off of your bank account and credit card transaction history. Examples of items that will be a cause for concern for a lot of lenders might include:
- payday loan repayments;
- online (or conventional casino/betting shop) gambling debts;
- regular luxury item purchases;
- extremely large (relative to your income) credit card debts;
(that said there is always a lender that has a lending policy flexible enough to consider some of the above positions however interest rates are likely to be less favourable)
- Being certain you understand your own business's financial position and the terminology used to describe it. For example, if a potential lender senses you don't know what a "P&L statement" is (now called a statement of comprehensive income), then they are unlikely to have confidence in what you're saying concerning your past and potential future income. We at Cornerstone can always help.
- Saving or otherwise securing as high a deposit as you can. Typically, the lower your Loan-to-Value (LTV), the cheaper the rate and higher its chances of success.
Some self-employed applicants, particularly those who are pessimistic about their prospects of securing a mortgage succumb to the temptation to try and exaggerate their earnings to obtain a larger mortgage. That would be a mistake.
The vast majority of lenders will immediately see from some of the above evidence that what you’re saying is not supported by the evidence. That may stop them lending to you at all or increase their perception of the risk in them doing so – and that can push your cost of borrowing up.
There are some great mortgage products out there for the self-employed.
Not all will necessarily be equally suitable for you, and that's why it might be sensible to consider discussing your requirements with our expert team of friendly advisors here at Cornerstone Finance to assist you with finding an optimal solution for your situation.
With our help, you should be confident and optimistic about your chances of success! Contact Cornerstone today and see how we can help if you are self-employed and looking for a Mortgage.