Self-Employed Mortgage Broker

Is it harder to get a mortgage as a self-employed person?

Although being self-employed offers lots of flexibility and freedom, it does mean that meeting the often strict lending criteria and affordability checks of a mortgage lender can be tricky, even if your business is doing well.

Nowadays there are more and more lenders with a larger range of products that make getting self-employed mortgages easier than ever before. This is why it is crucial to seek out professional mortgage advice so that an experienced mortgage advisor, like those of us at Millennium Mortgages, can find the best deal for your circumstances.

Lenders are keen to assess a self-employed person’s ability to finance a mortgage thoroughly, and the way a business has been set up can influence a mortgage lender’s decision. There are various ways for a company to manage balance sheets, cash flow and the distribution of profits and dividends, often based on the advice of an accountant. However, many mainstream mortgage lenders are not always sympathetic to potential self-employed borrowers whose income differs from the conventional salaried employee. Specialist mortgage brokers are accustomed to working with dividends and a share of company profits and are able to suggest specialist lenders who will, in most cases, take a wider view of income.

A strong trading history is a good start, as lenders want to see a business with longevity. However, if you have a short trading history, low profits, and personal income showing a low salary, this may make it harder to secure a successful mortgage application. Challenges such as these can be overcome with financial planning and sound advice from your mortgage broker.

Who can get a self-employed mortgage?

You can be defined as self-employed if you run your business and take complete responsibility for its success or failure. Numerous self-employed people are classed as a sole trader by HMRC, however people who have a working partnership, or who employ themselves at their own limited company, are also classed as being in a self-employed position. Lenders may also class those with a smaller shareholding as self employed, even if you receive regular payslips.

Some of these situations could be if you are classed as a contractor, where you undertake work for a company or client on a short or fixed-term basis, or you may work for an agency.

How does the Mortgage Process work for Self-Employed People

It’s important to note that a specialist self-employed mortgage doesn’t exist, and there are no specific self employed mortgage lenders. Often, the same mortgage products are available to a self employed applicant as somebody in full-time salaried employment. The only difference is that in many cases you will likely need to go to greater lengths to show your proof of income, and prove that it is stable.

Self employment can be seen as a risk for lenders because it can be difficult for them to establish your income, and some traditional lenders may assume that you may struggle to maintain your monthly mortgage repayments.

Lenders often use different ways to assess your eligibility for different mortgage deals. Many will base their assessment on your share of the company’s net profits and salary or dividends. It will also be taken into consideration if you have a proven record of paying off credit, or if you have left regular employment to start a self employed career in the same field as before.

Affordability will typically be based on an average of your last 2 – 3 years accounts, but newer businesses with strong growth can also apply based on the past financial year if it is an accurate representation of affordability.

To prove your affordability to a potential lender, it is essential you can provide proof of your income.

The most common methods along with submitting bank statements are:

• Company Accounts: These show the way income is structured, including dividends, retained profits, director’s loans and shareholders funds.
• Salary, payslips and P60: These are a proof of income, and show a detailed breakdown of your salary. You should also always provide an end of year P60 which breaks down gross and net income, plus any deductions.
• SA302 & Tax Year Overview: This important certificate shows your personal income during a specified tax year. You can download a copy of this when you submit your self assessment tax year overview, or request it from your accountant.
• Accountant Certificates: These are also used to show an individual’s income, and are highly valued by some lenders.

How Many Years Do You Have to Be Self-Employed to Get a Mortgage?

Most lenders are often more willing to consider applications for self employed mortgages if applicants can provide them with two years’ worth of accounts, along with the accompanying SA302s and Tax Year Overviews. Combined, these show the total income you received, as well as the tax paid.

Some mortgage providers will look at applications from newer businesses that have been around for less than that. However, choices will be a lot more limited, but with help from professional mortgage advisors, many people will be able to find a lender that will consider their application without demonstrating a long trading history.

Only a small number of lenders in the mortgage market will consider your case if you have self-employed status for less than a year, therefore there will be very few products available to you. This means that the interest rates for mortgage products you will be eligible for might not be that competitive.

Credit Score and Trading History

Everyone, whether employed or self-employed, will have a credit score. The three main providers are Experian, Equifax and TransUnion, and you are able to check how you are rated with each of them. These companies all use different indicators to assess your credit, but they essentially determine how reliable you are with money based on the records they have from companies who have given you credit in the past. Essentially, your credit rating is better depending on how high your credit score is.

Credit agencies will know if you have ever missed a payment, entered into an Individual Voluntary Arrangement (IVA), received a County Court Judgement (CCJ), or have ever been declared bankrupt. Any defaults will usually show on your credit report for up to six years. All of these things can significantly impact your credit score in a negative way.

Even if your business is profitable and you can prove your income, you might still struggle to secure a mortgage deal from mainstream lenders if you have black marks on your credit score. Less competitive interest rates will likely be offered to you (if at all) because your financial history shows that you are a higher risk than somebody with a flawless credit record.

Different Types of Mortgage Options Available to Self-Employed Applicants

The mortgages available to self-employed applicants it typically the same as the options available to as if you are employed. Broadly speaking, you will have the option of a Fixed or Variable rate mortgage with a range of different time periods.

Are self-cert mortgages still available?

The days of self-cert mortgages, which required little to no evidence of income and earnings, are well and truly over! Following an overhaul of mortgage market in 2009, self-cert mortgages were removed from offer.

Getting a Mortgage Without Accounts

If you are a company director, a mortgage lender will almost certainly require to see your company accounts. However, in some occasions lenders may be comfortable with an Accountant’s certificate, as long as the accountant has a specified accreditation.

Applying for a Mortgage Through a Self-Employed Mortgage Broker

As you have likely worked out by now, securing mortgages for self employed people is more complicated than standard applications for those in employment. Finding a suitable lender, as well as the most suitable mortgage product, is a skill that generally speaking only an experienced broker can help you with.

An experienced mortgage broker at Millennium Mortgages will be able to conduct an initial affordability assessment for limited company directors, sole traders and company directors, to best advise you on what mortgage rates may be available to you if you meet a lender’s criteria, and which products you have the highest chance of being accepted for.