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Self-employed mortgage guide – how to get a mortgage when you work for yourself

A self-employed mortgage is no different to any other home loan, but you may need to jump through a few more hoops to get one. You will have to prove your income (which can be more complex when you work for yourself) and have sufficient information (in some cases up to two years worth) to share with your mortgage lender.

If you can’t supply the required information, you may not be able to borrow as much, or may not be approved for the mortgage at all. There are specialist lenders available, but you may find that you are charged a higher premium as you are deemed a higher risk to lend to.

Get in touch with UK Contractor Mortgages today to discuss your Buy to Let & Residential Mortgage requirements.

Can I get a mortgage if I’m self-employed?

Yes, most lenders offer self-employed mortgages at the same rates and under the same terms as to employed borrowers.

If they usually lend up to a maximum of 4.5 times your income, for example, that doesn’t change just because you work for yourself.

Is it harder to get a self-employed mortgage?

It can be, because every borrower needs to prove their income to the lender to get the best mortgage rates. That can be more difficult if you’re self-employed, as your finances are often more complex.

There are many reasons the self-employed struggle to prove their income. Maybe you’ve had a bad year of trading, invested in your business (which has reduced your profits), or your company is new.

Mainstream lenders (such as high street banks) like to see a track record of self-employed earnings over two or three years. If your profits are variable or your income on paper doesn’t reflect what you can really afford, it can be hard to get the numbers to stack up.

If that’s the case, a lender may not offer you the size of mortgage you need.

Nick Morrey said: ‘In reality, it is more difficult for self-employed applicants due to the nature of how they are paid and taxed, and the documentation required to evidence their earnings. This complexity, compared to employed people, who can evidence their earnings by supplying payslips and bank statements, makes the process significantly harder.’

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Will I pay more for my mortgage if I’m self-employed?

Not necessarily. Providing you can afford the mortgage and prove your income in the way the lender requires, you have exactly the same access to mortgages as an employed borrower.

Many self-employed borrowers won’t encounter any problems.

But many others can’t prove their income to the strict requirements of a mainstream lender and can end up struggling to access a mortgage.

Luckily, there is another way. Specialist mortgage lenders are experts in dealing with self-employed borrowers.

They look at each case on its individual merits and have more flexible criteria around how they assess what you can afford, and how you can prove it.

Because these specialists are willing to lend to borrowers that can’t get a mainstream mortgage, they often charge a premium, so you could end up paying more.

What information will I need to provide for a self-employed mortgage?

A mortgage lender will want to see the same information as they do with any borrower – proof of ID, proof of address, and proof of your income and outgoings.

The major difference is that proof of income can be more complicated if you’re self-employed.

Instead of payslips, you usually have to provide at least your last two SA302 forms from HM Revenue and Customs, which show your tax calculation for the year. Lenders might also ask for your full audited accounts.

Morrey adds: ‘Lenders may also request three months’ business bank statements to see how the business is faring at the moment. For contractors they may ask for a minimum of 12 months’ worth of contracts in lieu of accounts.’

‘Lenders can request anything they deem necessary as part of their decision to lend, so be prepared to supply these documents to make the process as smooth as possible.”

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

Do I need to have been self-employed for a certain amount of time to qualify for a mortgage?

Usually lenders will want to see at least two years’ accounts before lending to self-employed borrowers.

Although there are exceptions, says Jane King: ‘For some occupations (usually professions such as doctors and lawyers) a lender may accept one year,’ she explains. ‘However the vast majority require at least two.’

Some specialist lenders also accept just one year’s accounts, regardless of profession, although they may charge a premium.

Will most lenders offer mortgages to self-employed people?

Yes, if you work for yourself, you can usually access the full product range of most lenders.

For example, Aldermore is a specialist mortgage lender that supports the self-employed with flexible lending criteria and smaller building societies are often willing to look at each case individually to see if they can find a way to lend. There are also many lenders you may not have heard of that a mortgage broker has exclusive access to.

A broker can also help you navigate the market. They’re experts in helping self-employed borrowers find a mortgage and have access to specialist lenders that don’t deal directly with borrowers, helping widen your search.

By Christina Hoghton

Source: Ideal Home

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What is a contractor mortgage broker and do I need one?

A contractor mortgage broker is a financial adviser who specialises in offering self-employed individuals and contractors advice on securing a mortgage.

Choosing a contractor mortgage is a complicated process, and knowing what rate, term, lender, features and insurance to get are all time-consuming and complex matters.

Contractor mortgage brokers can therefore provide you with an invaluable service – navigating this arduous journey on your behalf and presenting you with only the best options to suit your situation.

Why use a contractor mortgage broker?

You may still be wondering why you really need a contractor mortgage broker and are tempted to cut out the middleman and go direct.

But if you aren’t sure on whether you need a contractor mortgage broker or not, here are just a few of the reasons why you should consider using one.

Experience – contractor mortgage brokers will have proven experience in securing mortgages for contractors. Having dealt with a plethora of contractors means they will understand your needs and are therefore more likely to be able to offer you better products and services. Going direct with banks and lenders that don’t understand your situation could mean you end up with a loan that doesn’t reflect your true borrowing potential; with an interest rate that penalises you just for being a contractor.

Specialist knowledge – with experience comes knowledge; your contractor mortgage broker will have a specialist knowledge of contractors. It’s likely that they will have worked with contractors who would otherwise struggle to get a mortgage, for example those with gaps in their contracts, adverse credit or those needing to consolidate debt. It’s also likely that they will have worked with those who are paid outside the norm such as doctors, sole traders, partnerships and limited companies. They will not be phased when you present them with your situation and will know exactly how to advise you.

Protection – when you receive mortgage advice your contractor mortgage broker has a duty of care to you. They are required to recommend a suitable mortgage and should be able to justify why the chosen mortgage is suitable for you. If their advice turns out to be no good, you can complain and get compensated. You may not have as much legal recourse if you go directly to a high street mortgage lender.

To find out more about how we can assist you with your Contractor Mortgage please click here

What should I look for in a contractor mortgage broker?

If you have decided that you need a contractor mortgage broker, there are a few things to look out for when deciding who will help you on your journey to securing your home loan.

Reliability – you will need to look for a contractor mortgage broker that will be there with you from your first phone call to the day you get your keys. Find out if you will be assigned a specialist consultant or case manager to be on hand with advice and support. This kind of service makes the process as easy as possible for you.

Dedication – does the contractor mortgage broker you are considering work with a comprehensive range of high street lenders and building societies? You should ensure that your broker isn’t just choosing a lender because it’s the easiest route, or because they get a higher fee from them. You need to choose a broker that will go through all of their lenders to find the one that is right for you and your situation.

Success rate – the industry average success rate for a contractor mortgage is 71%, therefore you should seek out a contractor mortgage broker with a success rate of at least this, if not more. It goes without saying that the higher the success rate the better as it proves their track record with those in a similar situation to you.

Best fees – consider what fee the contractor mortgage broker is charging and what you are receiving for the fee. Do you only pay the fee if the broker secures your mortgage? Some will refund you the money if they do not get you a mortgage. If they aren’t charging a fee at all that’s not necessarily a good thing – it means they will be receiving a fee from the lender. They could be picking a lender based on how much money they can get from them, rather than what’s best for you, possibly resulting in higher rates or a decline for you. They might also not be a specialist who understands your needs, or they might not be willing to put the work in if your case is not straight forward.

Customer service – is your contractor mortgage broker known for their impeccable customer service? Good customer service goes a long way in easing the stress of getting a home loan, and also in ensuring that you understand every step of the process. You can check out potential brokers on review sites like Feefo or Trustpilot to see what their reputation is like, or speak to other contractors on the ContractorUK forum to find out what experiences they may have had with them.

Final considerations

Getting a contractor mortgage can be a minefield without the assistance of a contractor mortgage broker to streamline the whole process for you.

Making the wrong choice about your contractor mortgage can cost you hundreds, even thousands of pounds, and it’s easy to get tripped up with all the mortgages awash with extra fees and charges.

So if the additional cost of using a broker is holding you back – keep in mind that paying their fee could actually save you a small fortune.

Not only this, but a contractor mortgage broker will ensure that your mortgage application is processed smoothly and efficiently, alleviating any unnecessary stress associated with moving home.

Source: Contractor UK

For more information on getting a contractor mortgage click here.

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Getting A Mortgage When You’re Self-Employed

There are more than five million self-employed people in the UK, according to the Office for National Statistics (ONS). Yet getting a mortgage when you work for yourself can be more complicated than if you’re an employee working for a company.

Here’s what you need to know.

Can I get a mortgage if I am self-employed? 

You can get a mortgage if you work for yourself. However, lenders prefer job stability and the predictability that comes from a reliable income.

If your income tends to fluctuate from month to month – as it often does if you’re self-employed – lenders may be more nervous about letting you borrow. Because of this, you’re likely to need to provide more evidence of your income to get accepted for a mortgage.

How to apply for a self-employed mortgage

If you’re applying for a self-employed mortgage, you will need the following documents to prove your income:

  • Two or more years of certified accounts
  • SA302 forms or a tax year review from HMRC for the past two to three years 
  • Evidence of upcoming contracts if you’re a contractor
  • Proof of dividend payments or retained profits if you’re a company director.

You’ll also need:

  • Bank statements for the past three to six months
  • Proof of ID, such as your passport or driving licence
  • Proof of address, such as a council tax or utility bill.

Do your accounts have to be from an accountant?

Especially if your financial affairs are complicated, most lenders will insist that your accounts have been complied by a chartered or certified accountant (which means they are part of a professional body).

In any case, using one can only boost chances of being accepted for a mortgage. 

Note however, that while many accountants will legally reduce your declared income so that you pay less tax, your accounts will show a smaller profit as a result, which could affect your affordability when it comes to a mortgage application.

To find out more about how we can assist you with your Contractor Mortgage please click here

How does affordability work?

The introduction of the Mortgage Market Review (MMR) back in 2014 meant that lenders must now comprehensively check whether you can afford a mortgage, both now and in the future too.

As part of this assessment they will “stress test” your finances to see whether you would still be able to afford your mortgage if interest rates were to increase (to 3% above what the lender’s mortgage deal reverts to).

To ensure you won’t be overstretching yourself, lenders will look at both your income and how you spend your money. 

Your bank statements will be examined to assess how much you spend on household bills, childcare costs and commuting. Lenders will also consider how much you spend on holidays, socialising and hobbies, as well as whether you have any debts to repay and how much these are. 

Do all lenders want the same?

Although lenders must all follow the same rules, they won’t all have the same criteria.

This means that where one lender might turn you down, another might accept your application. For this reason, it’s important to check eligibility criteria carefully before applying.

You may also want to seek help from a mortgage broker.

Should you use a broker? 

There’s no requirement to use a mortgage broker to help you with your mortgage search. But, especially when you are self-employed, it can help to ensure you’re matched with the most suitable lender and deal.

Brokers have inside knowledge of each lender’s criteria and preferences, which can ensure you don’t waste your time applying for a mortgage you have no chance of being accepted for. 

Brokers will also manage your application and arrange the necessary paperwork, which can make the process much easier.

Many brokers do not charge the customer a fee for their services, taking their commission from mortgage lenders instead. However, check they are independent and have access to the whole of the mortgage market rather than just a selected panel of lenders. 

How your self-employed mortgage will be assessed 

If you’re self-employed, your situation will generally fall into one of three categories, and this will affect how you’re assessed.

  • Sole traders – if you’re a sole trader, you will need to declare your income using self-assessment and have your tax calculated by HMRC. You’ll need to submit this on a SA302 form which lenders will use when calculating what you can borrow
  • Partnership – if you’re in business with someone else, lenders will look at your individual share what profit it makes
  • Limited company – as a director of a limited company, lenders will look at both your salary and dividend payments when it comes to affordability. But note that not all lenders will factor in profits to their calculations, should you choose to retain any

Is it gross or net income the lender looks at? 

If you’re a sole trader or freelancer, lenders will usually look at your net profit over the past two to three years. An average is then taken from those figures. 

For contractors, lenders may take an average of your income over the past few years, or your annualised day rate may be taken into account.

If you’re a limited company, lenders will look at your share of net profit or your salary and dividend payments. 

What if your business has suffered because of Covid-19? 

In the wake of the Covid-19 pandemic, many lenders have tightened their criteria even further.

As a result, you may be asked to provide details of your turnover for the past three months as well as historic accounts so that lenders can see exactly how your earnings have been affected. 

Applications are usually looked at on a case-by-case basis, and some lenders may be more lenient than others. Using a broker may help you to find a lender that is more likely to accept your application.

Are the same mortgages available to the self-employed? 

These days self-employed people can choose from the same mortgages as anyone else, so there’s no such thing as ‘self-employed mortgages’. 

Traditionally, however, ‘self-certification’ or ‘self-cert’ mortgages were available. These were specifically designed for those unable to provide proof of their regular income, making them a popular choice for the self-employed. 

The Financial Conduct Authority (FCA) banned self-cert mortgages in 2014 due to concerns borrowers were being approved for mortgages they couldn’t afford to repay. 

Tips to boost your chances being accepted

There are several steps you can take to increase your chances of getting accepted for a self-employed mortgage:

  • Save for a bigger deposit: As with any type of mortgage, the more you can save up for a deposit, the more likely you are to get accepted for a mortgage and secure the best interest rates
  • Check and improve your credit score: Before applying for a mortgage, check your credit score by using one of the fee-free services available online. Lenders use your credit score to determine how reliable you are as a borrower, so the better it is the more likely you are to get accepted
  • If your credit score is poor, take steps to improve it such as checking you’re on the electoral roll, paying bills on time, spacing out credit applications and correcting any mistakes on your credit report
  • Get your paperwork in order: It’s important to ensure your accounts are up to date and have ideally been prepared by a qualified accountant before you apply. Ideally, you’ll need at least two years’ worth of accounts. 

Frequently Asked Questions

Who counts as self-employed?

Generally, lenders will view you as self-employed if you own more than 20% to 25% of a business from which you earn your main income. You could be classed as a contractor, sole trader, or company director.

Is it harder to get a mortgage when you’re self-employed?

It can be. But providing you have sufficient proof of income, a good credit score and a large deposit, you should still have a good chance of getting accepted.  

Do the self-employed pay higher mortgage rates?

Not necessarily. So long as you can provide adequate proof of your income, you should have access to the same mortgage rates as everyone else. You’re more likely to secure the best rates if you have a good credit history and large deposit.

If you’re struggling to get accepted by a mainstream bank, however, you may have to apply with a specialist lender which may charge higher rates. 

What can I do if I don’t have two years of accounts?

You may find it harder to get a self-employed mortgage if you don’t have two years of accounts. But your application may still be considered by certain lenders, particularly if you can prove you have already received regular work or that you have regular work lined up in the future.

It’s worth speaking to a mortgage broker to see if they can advise on lenders that may be more willing to accept those newly self-employed. If not, you may need to approach a specialist lender. 

Do self-certification mortgages still exist?

No – self-certification mortgages were banned from the UK market in 2014. 

By Rachel Wait

Source: Forbes

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