Are Self Employed mortgages a thing of the past?
Since the introduction of the Mortgage Market Review there have been numerous newspaper articles showing the issues faced by many borrowers including those looking for self employed mortgages. Whilst this new regime has made the process of applying for a mortgage more onerous, it does require that all lenders take full responsibility for their lending being affordable for borrowers. For some existing mortgage borrowers this has resulted in some becoming trapped on their lenders’ Standard Variable Rate as they struggle to meet the new requirements, despite many having successfully paid their mortgage for many years.
Recent research into self employed mortgages has shown that many self employed people also have concerns about getting a self employed mortgage. In fact 2 out of 5 self employed people are concerned that they will struggle to obtain a mortgage and 63% of self employed people said that mortgage lenders did not understand their needs or that of their business. The new regulation was not intended to discourage people from taking mortgages or to freeze self employed people out of the mortgage market but the new requirement for mortgage lenders to test affordability now and in the future has added increased complexity so lenders can fully demonstrate that providing a self employed mortgage is affordable. Some lenders, often larger banks, have struggle to adapt their automated processes to being able to review self employed mortgage cases and as a result have been deterred from serving this market. However, some smaller lenders such as regional building societies and smaller banks use manual underwriting which means that instead of using computers they use human beings to assess their mortgage applications. This means they can assess more diverse sources of income and review the circumstances of each case on its merits. Many specialise in self employed mortgages and even offer dedicated mortgages for self employed people.
There are some ways in which you can prepare to get a self employed mortgage. Here is a handy guide of how to get a self employed mortgage. Please note this list does not guarantee you will get a self employed mortgage, but the more prepared and informed you are the better.
Business Accounts. These need to be as up to date as possible, with a forecast up to year end if applicable. They should be signed off by a qualified accountant. Most mortgage lenders will want to see at least two years accounts for a self employed mortgage. However, some will consider fewer years depending on your experience in the sector of your business or your other circumstances. Also include signed off projections for your business for the years ahead. This will help the lender prove your affordability now and in the future.
If you have any doubts or queries about your mortgage lenders approach to accounts then ask the questions before you start the full mortgage process. It will save time in the long run!
Proving your income. Help to make life as easy as possible for the lender and getting your self employed mortgage should become a little easier too! Ask HMRC for a SA302 to show your income over the tax year.
Show you have a strong business. Have copies of contracts for existing and pending business with their values and time frames. This will help your mortgage lender to show your affordability over time and show you are a good lending risk.
Be confident in your own credentials. Sharing your experience and credentials in your business sector can be helpful as it helps the lender to assess if you are a credible lending risk. Furthermore some mortgage lenders will still offer self employed mortgages to those with less that two years accounts if the borrowers has significant experience in the same business sector.
The usual stuff too. You will need to provide your mortgage lender with the same items as other residential mortgage borrowers. This includes bank statements for all your accounts, benefits paperwork, outstanding credit card balances or loans and details of your household expenditure including cost of shopping, insurances, school/nursery fees or childcare costs. If you have any other sources of income you should also provide these too.
If that all seems a lot of hard work you could consider dealing with an independent financial advisor or a mortgage broker. They will have knowledge of the types of mortgage lenders that may suit your needs and will help you to compile the required evidence to meet their bank or building society’s lending criteria. 78% of self employed people said they were more confident of securing a mortgage by using a broker.
Whilst there is some effort to obtaining a self employed mortgage, it is possible to obtain one if you look for the right type of mortgage lender, who offers an individual approach to underwriting and lending and you are prepared with the right materials to help evidence your self employed mortgage is affordable.