Self Employed
Remember the days before you jumped the corporate ship? You worked PAYE–whisper it–for someone else. Getting fixed up with personal loans and a mortgage back then was pretty easy.
Provided you could cobble together a decent deposit and had a steady wage coming in–preferably two–all that remained was to spend many a happy evening scouring Rightmove for the perfect pad.Now you’re self-employed, getting a mortgage is way, way tougher… or is it? Let’s find out.
Can the self-employed get a mortgage in the UK?
So, can you get a mortgage in the UK when you’re self-employed? Of course, you can. If you work for yourself and want to re-mortgage or buy a new home, you’ll just need to take a slightly different route.
Before 2008 and the credit crunch, things were admittedly easier. If you were self-employed and looking to put a roof over your head, you could apply for a ‘self-certification’ mortgage.
There was no need to produce bank statements or payslips to back up your income claims. You simply rocked up at the bank or building society, told them your earnings and picked up the keys. It wasn’t unusual to be fast-tracked.
Exaggerated earnings
These ‘self-cert’ mortgages were designed with freelancers, business owners and contractors in mind. But they were abused and their use became much wider than that. Applicants frequently exaggerated their earnings to land a larger mortgage.
They were officially called stated-income loans, but became known as ‘liar loans’.Inevitably, stated-income loans were banned by the regulator in 2014 under the Mortgage Market Review. Since then, it’s been much tougher for the self-employed to get a mortgage in the UK.But wait. It seems that self-cert mortgages are back. A business operating from the Czech Republic has started offering self-cert mortgages priced at base rate plus two percent. In its first week, selfcert.co.uk was inundated with over 4,000 enquiries. With more than enough business to eat up its lending funds, the firm initially had to close its doors to new business.
Regulatory protection
All well and good. Except that the regulator is not impressed. They’ve warned that buyers will get no protection under the Financial Ombudsman Service because the Czech firm is outside its authority.But hey, what do you care? It’s their risk, isn’t it? Well, yes, but if you miss payments or don’t slavishly obey the rules in the small print, you won’t enjoy the same protection you’d get from a UK mortgage lender.
That might mean sky-high charges and interest penalties. And the company could even take out a repossession order on your home.Let’s assume, then, that that’s a route you want to avoid. What other options are open to you if you’re self-employed and want a mortgage in the UK?
How to get a mortgage when self-employed
First up, let’s clear up an urban myth. You won’t be applying for a ‘self-employed mortgage’. There’s no such thing. You’ll be getting a standard mortgage. It's just one that requires you to hop through a few more hoops than if you were on PAYE.The main thing to bear in mind as a self-employed worker is that you’re going to need to prove your income. Lenders will usually want to see two or three years’ accounts. If you can show more, so much the better.
You’ll also need an accountant, proof of regular work through your business bank statements, a sound credit history and a healthy deposit.Banks and building societies will make their assessments on your average profit in the three years or so leading up to your application. If an accountant has done your books, that’s good news for lenders.All the better if they’re certified or chartered. But make sure you’re presenting lenders with up-to-date figures.
No accounts?
What if you don’t have at least two years’ accounts? It’s not a deal-breaker. There are mortgage lenders that will still give you the time of day. It’ll be up to you to demonstrate a regular flow of work or proof of work yet to come.You might also be working as a contractor in your regular industry. All these circumstances could be looked upon favourably.
But how about if you already have a mortgage and you’re looking to re-mortgage–you want to move house or just free-up some equity? Your first port of call should be your existing lender. They’re familiar with you, they know you’ve kept up your repayments (hopefully) and are far more likely to agree to new lending.
Whether you’re self-employed or an employee, your chances of success will be hugely improved if you’ve got a good deposit lined up or sizeable equity. In general, you should have at least five percent put away. So, if you’re looking at a property worth £250,000, a deposit of £12,500 would be the norm.
Credit record
You’ll also be looked upon more favourably if you have a clean credit record. You can check your credit score for free at Experian or Equifax. There are ways to improve your credit score, too, such as paying your bills on time and keeping your credit card balances low. You can read more about this on Experian’s website.
One important thing to note is that lenders won’t just credit-check you personally–they’ll also run a check on your business. Make sure they don’t find anything untoward by paying off your debts and going through the report yourself with a fine-toothed comb. You want to make sure nothing will harm your chances of getting a mortgage.
