Getting a Mortgage If You’re Self-Employed With Bad Credit

In this article, we’ll explain how to get a bad credit mortgage when you’re self-employed, what criteria you’ll need to meet and why using the services of a specialist broker can make all the difference.

Can you get a bad credit mortgage if you’re self-employed?

Yes! There are mortgages available for self-employed people with bad credit, but seeking expert advice before applying is highly recommended. It could well be the case that you need a specialist mortgage lender with an appetite for risk.

The level of risk involved in the deal will come down to a number of factors, such as…

• How long you’ve been self-employed for
• The cause of the bad credit and how long ago it occurred
• The circumstances surrounding your adverse credit
• How much deposit you have
• How closely do you meet the lender’s affordability criteria

Getting the most favourable interest rates possible is a case of matching the level of risk to the lender with the right appetite for it, and the brokers we work with will know the mortgage provider who is best positioned to help you

How to get a mortgage if you’re self-employed with bad credit

Your first step should be to seek professional advice from a specialist bad credit mortgage broker. Using our free broker-matching service, you can speak straight to the right mortgage broker by simply making an online enquiry.

They’ll be able to help with:

• Checking your credit reports: You’ll want your file to be in the best possible shape, so downloading your credit reports will allow you to challenge any inaccuracies.
• Finding the right lender: If you have bad credit, you’ll need a specialist lender, and your broker will know which to approach.
• Gather all the necessary documents: Your broker will know exactly what documentary evidence a lender will expect to see and will help you throughout the mortgage application process.

Why going direct to a lender is not recommended in this situation

Approaching lenders directly comes with the risk of being declined for a mortgage simply because that particular lender’s eligibility criteria didn’t cater for the specific credit issue you’ve had. The end result of this would be further marks on your credit report.

This could jeopardise any future applications for finance as mortgage lenders are wary of too many borrowing requests in a short space of time. Plus, most of the lenders who consider adverse credit are only accessible via a broker anyway. This is why approaching a specialist broker first is the smart move.

Did you know… You could access 30% more of the mortgage market with a specialist Bad-Credit broker on your side.

What criteria will you need to meet?

As a self-employed individual, the criteria you need to meet are mainly the same, apart from how your income is assessed.

Most lenders will want you to produce two to three years of accounts or tax calculations, although it may be possible to find a provider who is happy with 12 months, depending on how much additional risk your adverse credit carries.

It will likely help your cause if your accounts show steady income during the period they cover, as fluctuating earnings could raise concerns with the lender. If your income has gaps, a strong track record in the industry you trade in can help offset some of the risks.

How will your bad credit be assessed?

While some mortgage lenders might reject your application or offer hike-up rates if you have bad credit, specialist mortgage providers are known to take a broader, more flexible view of applications.

The lenders will base their lending decision on the following…

The type of bad credit you have:

Some credit issues are more severe than others. For example, bankruptcy is considered the most serious, and a missed mobile phone bill payment is generally easy for mortgage lenders to overlook.

Below is a list of credit issues ranked by severity—the ones at the top are the least severe.

• No credit history
• Low credit ratings
• Late payments
• Unauthorised overdraft charges
• Mortgage arrears
• Defaults
• County Court Judgement (CCJ)
• Debt Management Plan (DMP)
• Individual Voluntary Arrangement (IVA)
• Repossession
• Bankruptcy
• Multiple credit issues

The age of the credit issue

The most severe types of bad credit, such as bankruptcy, will need to be discharged, but all such issues will disappear from your credit report after six years. After this point, the number of lenders you must choose from and the rates you will be offered will steadily improve.

The reason for the credit issue

Lenders are more likely to overlook an unexpected life event than gross financial mismanagement, especially if your financial conduct has been responsible since the issue was registered.

Lenders who offer bad credit mortgages may be willing to take the above factors on board, as well as how closely you meet the rest of their eligibility and affordability criteria. There are also ways that you can offset the risk posed by your bad credit history

How to lower the risk

You can lower the level of risk to increase the number of approachable lenders.

They include…

• Put down an extra deposit: Most mortgage lenders prefer customers to have at least a 10-15% deposit (although 5% deals are available), but if you have bad credit, putting down extra is usually recommended as it could give you access to better rates.
• Declare at least three years of accounts: The more accounts you have to prove your income, the better. Having at least three years’ worth will likely give you access to a wider range of deals due to the increased number of lenders you could approach.
• Pay off any debts you’re in a position to clear: Not only will settling them on time boost your credit rating, but clearing any debts could allow you to borrow more by improving your debt-to-income ratio.
• Apply through a mortgage broker: Applying for your mortgage through a broker can also help you land a more favourable deal. They can suggest other ways to lower the risk and help you find the best lender for your circumstances.

How much will you be able to borrow?

The answer to this will depend on how you trade. Select your trading type from the drop-down menu on our calculator below to get a rough idea of your maximum borrowing, but remember that bad credit might prevent you from accessing the highest income multiples.

Will it make a difference if it’s a joint mortgage?

Yes. The income multiple you qualify for will be based on the combined earnings of everyone who will be named on the mortgage.

One thing to remember, though, is that your bad credit will be factored in when the lender is assessing the overall strength of the application. It’s possible to get a joint mortgage when one applicant has credit issues, but a specialist adverse credit lender is usually needed to ensure you’re getting the best deal.

Speak to a bad credit and self-employed mortgage specialist

If you’ve had – or have – a bad credit record and are self-employed, you can still get a mortgage. But it can be much more difficult to do this alone. The smart move is to use the services of a specialist broker who has lots of experience with self-employed applicants who’ve experienced credit issues in the past.

We offer a broker-matching service. This means we’ll quickly assess your credit situation and then match you with an expert advisor who best suits your needs.

Just call 0330 818 7026 or make an enquiry. We’ll arrange a free, no-obligation introductory call between you and your ideal bad credit mortgage broker today.