If you are a budding entrepreneur who’s recently taken the plunge to go self-employed and run your own business, you would be forgiven for thinking that your chance of securing a credible mortgage on a property has long gone.
Since the 2008 economic downturn, mortgage lenders have placed increasingly stringent criteria on applications from self-employed professionals. That’s because too many were being given self-certification mortgages at the height of the financial crash, resulting in a raft of mortgage defaults.
So, what do you have to do in order to obtain a self-employed mortgage today?
This article talks about the several hoops you’ll have to jump through to make your property ownership dreams a reality as a busy entrepreneur.
You’ll need a earnings record
In the past, it’s been possible to get away with self-certifying your income and stating an estimate of your income on your application, without concrete proof.
However, that’s a thing of the past.
Mortgage lenders now want a minimum of one (preferably two) years’ worth of accounts that have been made up professionally by a chartered accountant.
If you are self-employed, you will also be expected to provide proof of your self-assessment tax returns by submitting your SA302 forms alongside your accounts.
If you enter into a business partnership, be sure to make up accounts that display accurately your share of the profits, allowing lenders to calculate your annual income and adjust accordingly.
Do your best to muster a healthy deposit
Full-time employed mortgage applicants stand a better chance of getting a good mortgage rate if they can provide a sizeable deposit against the value of the property they wish to purchase.
This is even more important for self-employed mortgage applicants. If you are able to cough up a large chunk of 20-25% of the property’s value as a downpayment, you will be viewed as a far lower risk than applicants with only 5% deposits.
Speak your options with a mortgage broker
Of course, if you want to make sure that you apply for a mortgage with a lender that has a risk appetite that enables them to lend to self-employed individuals, it’s a good idea to liaise with a mortgage broker.
A broker or advisor will help you avoid making failed applications for agreements in principle that can also create red marks on your credit history. If you have a property that you want to make an offer on fast, you’ll want a lender that is known for its swift application process and competitive rates.
Online mortgage broker Trussle provides information regarding RBS mortgage rates and reports the application process takes just 12 days to complete on average. By comparison, some other high-street lenders such as TSB and Virgin Money take 14 days, while Barclays take up to 18 days on average.
Manage your credit rating to a good status
There are a few more important factors that influence a mortgage lender’s decision on self-employed professionals than their credit history. How self-employed applicants handle credit such as credit cards and loans demonstrates to a lender just how financially responsible they are.
Don’t make minimum monthly repayments on your credit card, avoid using the full percentage of your available credit, ensure you are added to the electoral roll with your local council and avoid payday loans to put yourself in the best possible light with lenders.
Don’t assume that it’s no longer possible to get a mortgage if you’re self-employed.
It might take a little organization and preparation but it’s still realistic to run your own business and get the finance you need to make having your own property a reality.