Is Getting a Mortgage Harder When You’re Self-Employed?
There are currently around 4.8 million self-employed people in the UK, and many of those people think that they wouldn’t be eligible for a mortgage because of their lack of three years’ worth of accounts or their irregular income. This isn’t the case; it just means that there’s a few more hoops to jump through.
If you’re self-employed the thought of getting a mortgage could be a daunting task for you. There’s a perception that people who are self-employed will have a much more difficult time being approved for a mortgage, and this is stopping a lot of people from trying to get on the property ladder. It’s safe to say that a fair amount of people who could own a property are counting themselves out without even trying.
Getting a mortgage when you’re self-employed may be more difficult now since self-cert mortgages (which allowed individuals to borrow money without having to prove their income beforehand) were banned in 2014 due to concerns that borrowers couldn’t afford the mortgages they were being accepted for.
But it’s certainly not impossible, there’s just a few extra steps you’ll have to take to prove to a mortgage lender that your income is reliable enough as you have no employer to vouch for your wage.
How to Improve Your Chances of Being Accepted for a Mortgage
· First thing you can do is speak to an online mortgage advisor, they can match you with a lender that is most suitable for you. They’ll also know which building societies and banks will be best for you to join.
· Save as much money as you can for a deposit, this will show that you’re sensible with money.
· Make sure you’re on the electoral roll by checking with your local council, this will usually be the first thing people check for.
· Get your accounts prepared for a certified accountant.
· Stay under your credit card limit by as much as possible. Try to keep below 30% of your available credit, and always make payments on time.
· And to further the above point, don’t just stick to minimum payments on your card. This could suggest to the lender that you’re struggling financially.
· Check your credit file to make sure there are no adverse records against you, this is incredibly important as your credit score/rating will dictate which mortgage deals and rates you can apply for.
· Make sure your accounts are up to date and everything is paid on time. It’s best to pay for things via direct debit where you can.
· Avoid taking out any loans/payday loans, this will also tell the lender that you’re having financial difficulty. Most lenders will automatically decline if they see records of any recent loans you’ve taken out.
What Do You Have to Provide for a Self-Employed Mortgage?
· Valid passport or driving license.
· Proof of address via a council tax bill and utility bills dated within the last 3 months.
· Six months’ worth of bank statements to prove you’re not struggling financially.
· You’ll also need to show a bank statement showing that the deposit is held in your account and where it’s been built up.
· The last 12 months of contracts fully signed by all parties.
· If you’re a limited company director, then you’ll need to provide the last 2 years’ worth of fully signed off accounts (although some lenders will accept one year’s worth)
· Evidence of any life insurance that you have that would cover the mortgage.
· If you rent out property as a source of income, then you will need to provide both evidence of rent paid to you and a Tenancy Agreement.
· Request a tax overview and 3 years’ worth of SA302s from HMRC.
If you follow the above tips and gather everything that is required, you’ll be much more likely to be accepted for a self-employed mortgage. Remember, you have just as much of a chance as everyone else is, you just have to gather more evidence to back up your case and make yourself look like a reliable borrower. Take time before you apply and ask a professional to get your finances and documents all in order, and you’ll be more than prepared to apply.