How Easy is it to Get a Self-Employed Mortgage?
Before the global recession in 2008, the mortgage market was exceptionally relaxed when it came to self-employed professionals. Lenders were prepared to trust self-employed mortgage applicants that would self-certify their annual salary. Self-certification mortgages didn’t even require one-man-bands to provide proof of their earnings via bank statements or payslips. Wind the clock forward more than a decade and the mortgage landscape has changed somewhat for the UK’s self-employed community.
Although almost five million people are self-employed in the UK, mortgage lenders were prohibited from offering self-certification mortgages by the Financial Conduct Authority (FCA) in 2011. Instead, mortgage lenders have redesigned their self-employed mortgage products, with eligibility criteria that requires self-employed applicants to prove how much they earn so that lenders can be sure you can afford the monthly repayments.
Typically, mortgage lenders will require at least two-to-three years of accounts or self-assessment (SA302) forms to consider an application. For instance, when you make a NatWest mortgage application as a self-employed individual, you’ll need to provide two years of accounts to pass the ‘assessment’ stage of an application.
However, if you go through a mortgage broker, it’s possible they will be able to find you a mortgage lender that requires only a year of accounts or SA302 forms – ideal if you’ve only been trading for a matter of months.
How can self-employed professionals improve their mortgage chances?
Mortgage lenders no longer look solely at your annual income as a self-employed professional. They look at the bigger picture. This will include your credit history, your presence on the electoral roll and so forth. If you want to give yourself the best possible chance of securing a self-employed mortgage be sure to heed the following tips:
Double-check your credit file to make sure there are no adverse entries against you that you were unaware of. If any of these entries are unknown or incorrect, you may be able to appeal to have these entries removed from your credit file by the credit agency in question.
You can improve your credit score by entering your name on the electoral roll. Liaise with your local council to see whether you’re already listed.
Don’t touch payday loans with a bargepole. Lenders take a very dim view of these types of high APR loans. If there’s a recent record of them on your accounts, you’re more likely to be declined a mortgage by lenders.
Avoid using a high percentage of your credit limit. While it’s primarily important to pay more than the monthly minimum off on your credit cards, keeping a lower percentage of use on your credit cards can also improve your credit score. It proves you don’t have to rely on debt to live week-to-week.
Seek an agreement in principle with your chosen mortgage lender first. This will give you the confidence to view available properties within your budget and give you a clear indication that your personal finances are in order.
Operating as a sole trader doesn’t mean the end of the road when it comes to obtaining a mortgage. You just have to be a little wiser in your approach to prove to lenders that you’re a worthy candidate.