Self-Employed Mortgage: Key Points to Consider
If you're self-employed and looking to secure a mortgage, you may have encountered challenges or heard stories about the complexities involved. Rest assured, obtaining a mortgage as a self-employed individual is possible, but the process may differ slightly. Lenders typically require additional documentation to assess your income and financial stability. Let's explore why it may seem more complicated and highlight key considerations for self-employed mortgages in the UK.
Understanding Income Assessment:
One of the reasons for complexity is uncertainty regarding the income lenders consider for self-employed individuals. While salaried employees have a straightforward income figure, self-employed individuals with limited companies face intricacies like turnover, before-tax profit, net profit, and dividends. Each lender may have different criteria, making it challenging to determine which income source they will use. Fluctuations in earnings between years further complicate the situation, and lenders may have their own assessment criteria.
Key Considerations for Self-Employed Mortgages in the UK:
Proof of income: Lenders typically require self-employed individuals to provide proof of income, which can be more complex than for regular employees. This may include several years' worth of accounts, tax returns (usually two to three years), and business bank statements.
Trading history: Lenders often prefer borrowers with a proven track record of self-employment. Most require a minimum trading history of two to three years. However, specialist lenders might consider those with shorter trading periods or freelancers with multiple income sources.
Affordability assessment: Lenders evaluate your affordability based on your income, expenses, and financial commitments. They may thoroughly review your business accounts to assess your earning potential and income stability. If your income varies significantly, lenders may calculate an average over the past few years.
Deposit: A deposit is required when purchasing a property. While the specific deposit amount can vary, having a larger deposit generally improves your chances of securing a mortgage with favourable terms.
Specialist lenders: Some lenders specialise in providing mortgages to self-employed individuals. They tailor their criteria and requirements to accommodate the unique circumstances of self-employed borrowers. They may consider factors such as contract-based income, freelancers, or complex income structures.
Mortgage types: Self-employed borrowers have access to various mortgage types, including fixed-rate, variable-rate, or tracker mortgages. Each type has its own advantages and considerations, so it's important to understand the available options.
Seeking Guidance from a Specialist Mortgage Broker:
Engaging a mortgage broker who specialises in self-employed mortgages can be highly beneficial. These experts help you navigate the jargon and complex criteria of lenders, streamlining the process of securing your new home. They have the expertise to assess your situation, identify suitable lenders, and present your case effectively.
For example, let's consider two scenarios. John, a sole trader, experienced a drop in income due to Covid-related circumstances. A specialist mortgage broker helps him find a lender willing to consider an average of his latest two years' income, based on projections for the current year. This enables John to buy his home. Similarly, Katy, a self-employed contractor with only one year of self-employment, benefits from a broker who finds a lender willing to consider her previous employed salary as income, given her increased earnings as a contractor.
In conclusion, partnering with a specialist mortgage broker can simplify the process and increase your chances of securing a mortgage as a self-employed individual. They understand the complexities and can guide you towards homeownership successfully.
Also getting hold of your credit file can be a helpful step in the process:
Free Credit File Check. Check your credit score from the outset! Use checkmyfile as they provide reports of all three credit file agencies the mortgage lenders use to credit score you, on one file (Experian, Equifax, and Transunion)
checkmyfile offer a 30-day free trial which is then £14.99 a month thereafter and can be cancelled at any time.
Check my free credit score now:
https://www.checkmyfile.com/?ref=n2ywzgi&cbap=1 Free Credit File Check. Check your credit score from the outset! Use checkmyfile as they provide reports of all three credit file agencies the mortgage lenders use to credit score you, on one file (Experian, Equifax, and Transunion)
checkmyfile offer a 30-day free trial which is then £14.99 a month thereafter and can be cancelled at any time.
Check my free credit score now:
https://www.checkmyfile.com/?ref=n2ywzgi&cbap=1
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