Self Employed Mortgages from Rivington Mortgages
No matter if you’re a builder, plumber, contractor or tattooist, getting a self-employed mortgage is notoriously hard. With so many more regulations and boxes to tick before a mortgage provider will give you a loan, buying your first home can often be challenging.
Many years ago before the 2007 financial crisis, getting a self-employed mortgage was easy. By applying for a self-certification mortgage, all you had to do was tell the mortgage lender how much you earned. As you can imagine, many people abused this system over exaggerating their earnings substantially, leading to them being known as “liar loans”.
Since then, mortgage regulations have significantly increased making self-employed mortgages require lots of additional background and income checks. Although it's not impossible to get a self-employed mortgage, it is now considerably harder.
Here at Rivington Mortgages, we’ve worked with hundreds of self-employed clients to help them find the best deal on their mortgage. As a first time buyer or someone looking for a re-mortgage who’s self-employed, the information out there can often be overwhelming. But having secured mortgages for plenty of clients in the past, we can help you make sense of the paperwork and guide you through the process of getting a self-employed mortgage.
What You Need To Get a Self-Employed Mortgage
Getting a self-employed mortgage requires a lot of extra work compared to a “regular mortgage”. Although there is technically no such thing as a “self-employed mortgage” and everyone applies for the same mortgage, there is a lot more paperwork involved. As an absolute minimum, self-employed individuals are expected to have at least 2 years of accounts or tax returns (1 year is sometimes available with specialist lenders). Anything less than that and you’ll fall at the first hurdle. Anything more than 2 years is very beneficial and can often help speed up your application and get you a better rate.
In addition to accounts and tax returns, it’s also beneficial if you have your accounts checked by an external accountant. Banks usually trust 3rd party accountants over individuals who file their taxes themselves. This is because the accounts undergo more scrutiny by a financial professional before being marked as complete. Self-assessment taxes, on the other hand, are often done by the individuals themselves which can leave room for errors and mistakes. This means a lot of the time individuals can often overestimate their earnings.
How Self-Employed Mortgages Are Calculated
When lenders calculate how much they can lend to you, they will usually use an average of your businesses profits, or salary + dividends, over the past 3 years, although some will consider 2 (and a small subsection of specialist lenders may consider 1 years). If you don’t have 2 years of accounts then there’s still a chance you’ll be able to get approved, but only under special circumstances. For example, if you’ve just quit your job to become a contractor in the same industry, then there’s a good chance you’ll have regular work and therefore regular income.
Proving to your mortgage provider that you have future work lined up is a great way to help improve the chances of being accepted. To help speed up your application and improve the chances of being approved, here are some more tips when applying for self-employed mortgages.
Tips For Self-Employed Mortgages
When applying for a mortgage as a self-employed individual, there are a number of things you can do to improve your mortgage approval chances. At Rivington Mortgages, we suggest you:
Have 2 Years Accounts
As mentioned before, having 2 years worth of accounts is often required for many self-employed mortgage applications. The more years of accounts you have, the better, as it allows your provider to carry out a better risk assessment. It can also affect how much you are allowed to borrow and what your mortgage rate will be.
Get an Accountant!
Another critical factor that many mortgage providers look at is if an accountant or not have audited your accounts. Having your accounts audited by a certified account is often a good move as it allows them to double check the numbers. Doing the accounts yourself is a good start, but with the amount of mistakes people can make, ensuring the numbers are correct is essential.
Maintain A Good Credit Rating
One of the first things mortgages providers will check when processing your mortgage application is your credit rating. As you’ve probably guessed, having a good credit rating will greatly increase your chances of being accepted. This credit check goes for both your personal credit and business credit. Don’t think they won’t check your business credit, because you’re applying as an individual. Your business and its profitability has a direct relating to your income and therefore your mortgage application.
Save A Significant Deposit
Having proper accounts and profitability is only one part of the mortgage application. In order to get approved and receiving funding, you’ll need to make sure you have a significant deposit saved up. Most mortgage providers will require different amounts ranging from around 10% of the property value to 25%. The most common deposit percentage is 10%, but that doesn't mean you have to go for 10%. Having a larger deposit can significantly reduce your mortgage rate, which in turn will reduce the amount you pay back in the long term.
Don’t Minimize Your Income
When completing your end of year business accounts, it can often be tempting to reduce your yearly income by as much as possible. In most cases, this is usually a good idea, but not when you’re applying for a self-employed mortgage. Since mortgage providers use the average of your businesses profit to calculate how much you can borrow, you want to make sure this figure is as big as possible. Of course, this means you might end up having to pay a bit more tax in the short term, but without doing it, you won’t be able to secure funding.
Have Proof of Future Work / Income
Although this tip is not essential when applying for a mortgage, it can significantly help with your mortgage approval. Many mortgage providers always want to make sure their risk is as low as possible. If you have future proof of work or income, then this can often convince mortgage providers to lend you money. By showing them you have future work and income, this can greatly increase your chances of being approved. After all, mortgage providers always want to reduce their risk as much as possible. This is particularly applicable to contractors, who may be required to show evidence that a contract will be renewed.
Your property may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage