Self Employed Mortgages - A Guide
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Self employed mortgages FAQ
Because we get regular similar questions from our customers and visitors enquiring on the site, we have collated some info to help explain how self-employed mortgages work, and to show that it is possible to get a self employed mortgage even if you’ve been turned away until now due to a lack of accounts or adverse credit for example. Have a read through and make an enquiry for one of our experts to evaluate your situation and establish what you’re eligible for.
Which lenders cater for the self employed?
It’s important to remember that every lender is different. They all have a varied opinion on a massive range of criteria, which can make finding the right mortgage very complex. When it comes to self employed applicants, certain lenders request 3 or more full years of accounts to prove income, where some lenders are able to offer a mortgage with just one years set of accounts.
Some lenders consider businesses that have had a decline in profits in recent years, some decline it if takings were as small as £1 less! This criteria changes all the time, as every lender alters their stance on what is and is not acceptable – for this reason it would be inappropriate to list lenders as it could very soon be outdated.
So, if you’re self employed and looking to get a mortgage, the best advice would be to find a specialist broker that knows when and where the best deals are to be had, and which lenders would consider an application before you even start.
Help to buy for self-employed applicants
Self-employed Help to Buy scheme mortgages are harder to come by if you only have 1 or 2 years accounts or trading history, but they do exist and often at great rates too. Those that have been self-employed for over 3 years with accounts or tax returns as evidence, can pretty much qualify for the same mortgages as everyone else.
If you don’t yet have 1 years accounts then it’s not possible to get residential mortgages these days, but if you’re close to finishing your first tax year then the advisors can work with your accountant to establish the declared minimum income required for the borrowing you need.
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I’ve been declined by my bank, can I still get a mortgage?
On mortgages for self employed applicants it’s important to remember that every lender does things differently, and each occupies a different corner of the market, so it’s important not to give up if you’ve been declined with one lender. Within each sector, different lenders still have differing criteria, some will lend on concrete properties, and some won’t. Some will let you get a buy to let mortgage as a first time buyer, some wont. Similarly, some will lend to the self employed, some won’t.
The truth is, getting a mortgage is much harder than it used to be across the board, not just for self employed applicants. FCA regulation has came in following the credit crunch, and because of the lack of money available things really tightened up, so lenders had to pick and chose who they give their money to.
As a result, self certified mortgages have been removed from the market (although it is still possible to get a self-cert secured loan if you are looking for additional borrowing). This means the self employed builder or taxi driver, writing off profit as expenses and declaring less income, will find it much harder to borrow to the same levels, if at all.
This has created difficulties in buying and moving, and in some cases created mortgage ‘traps’ where customers have been lent money pre-regulation, and are now unable to find any other lender to take their mortgage on in the same terms.
Keep the faith though – just because you have been turned down by your own bank, doesn’t necessarily mean you can’t qualify for a mortgage anywhere. Specialist mortgage broker services that have whole of market access will be able to put you in front of lenders with a more flexible attitude – and there are a few reputable organisations out there that you won’t see on the high street (and probably won’t have ever heard of!) that you can only access through a broker.
Self Employed Mortgages without Proof of Income
Self employed mortgage loans used to be ten a penny. Now, self-cert mortgages no longer exist in their traditional form so getting finance for self employed customers can be tough.
However, if you are looking to borrow additional money from your home then certain lenders do offer a secured loan without proof of income in many cases. The FCA has imposed regulation to put the responsibility of lending on the organisation rather than the individual. Therefore, lender’s have an obligation to ‘lend responsibly’, requiring them to ensure that the borrower is in a position now and in the future to meet your mortgage and other household commitments.
The last thing a borrower needs is to be given a mortgage commitment for 25 years to then find they can’t actually afford to repay that mortgage and have to leave their home.
It’s important they can show how a borrower is able to repay anything they lend out in a manner that would stand up in court should the borrower default. To do this they have to show they verified the income and the entire application sufficiently. The historical self cert mortgages sidestepped this entirely, which is one of the main reasons they no longer exist for loans regulated by the FCA.
So, how do I prove my income now?
If you need a mortgage self employed, the main way a lender will verify your income is through: – Payslips / p60’s / employer references – Benefit / Pension statements – SA302 tax returns – Self-employed accounts. Most of the main lenders you’ll know about will require up to 3 years accounts and sometimes more. BUT if you’ve only been trading a year, don’t worry. There are mortgage lenders that will lend to you with 1 year in the right circumstances.
I have a complex situation, what can I do?
Mortgages for self employed people are often more complex than for employed applicants, and careful advice is required. The right broker may be able to get in touch with underwriters/business development managers (decision makers) who look at things on a case by case basis.
Lenders can then consider accountants references, those paid in cash, and a range of other income evidence that may differ from what your main high street bank would ask. Tell us about your situation and see how the advisors we work with can help.
So what income can I use?
The income lenders usually accept is:
EMPLOYED – gross basic income – bonus – overtime – commission – car / town / shift allowances – mortgage subsidy – other cash employer benefits
SOLE TRADER – Net profit (if using accounts) – Total income received (if using SA302’s)
PARTNERSHIP – Your share of net profit (if using accounts) – Your share of total income received (if using SA302’s)
LTD COMPANY – Your share of directors salary – Your share of dividends – Occasionally lenders can consider net profit if there has been a large business expense or a sum earned but left in the business and not withdrawn.
Most lenders will require at least 3 years accounts; however here are some lenders that accept 2 or even 1 year’s accounts.The important thing to note here is that if you’re having trouble finding a lender to accept your unique situation don’t give up. Give us a call, leave a message on the live chat, or make an enquiry and see how one of the self-employed specialists we work with can help.
Ways to prove income
Standard evidence: – SA302 self assessment tax returns – Finalised accounts – Projected accounts More flexible lenders can use qualified accountants references to show: – Pay slips from your own company/family company – Handwritten pay slips – If paid in cash. Also, occasionally lenders can accept proof of rental income using the tenancy agreement and bank statements.
Other incomes lenders may accept
Investment income Rental income Trust income Income earned overseas Income earned in a foreign currency Bursary Stipend Pension State benefits and more…
Are small lenders safe?
Firstly, if your mortgage was with a lender that failed, the likelihood of a repossession order falling at your door is very remote. History shows that when a lending book goes bad, another institution has come in and buy it out. It may even have its benefits if your lender is struggling for cash. In the case of Northern Rock for example, borrowers were given the chance to re-mortgage away to another lender with no repayment charges. As rates dropped across the market this allowed those tied in on high fixed rates to shop around for better deals without penalty.
At one time, some lenders were even offering customers thousands of pounds worth of discount each, to repay their loan early in an attempt to get funds back on the balance sheet. With the bailout of Lloyds banking group and others, the UK government has reinforced its promise to prevent any financial institution from failing.
This commitment covers all lenders, regardless of size. The Financial Services Compensation Scheme (FSCS) also places no stipulation on the size of institutions either. Therefore, as long as the mortgage is regulated by the Financial Conduct Authority, you’ll still be able to use the scheme to claim compensation if anything goes wrong.
Secondly, although the mortgage market, like any, is impossible to predict with 100% certainty, it may be prudent to accept that your mortgage will need to be with a lender other than one of the big high street names. Frequently, smaller banks and building societies offer exclusive rates and exceptionally good deals, and are leading the market at the moment due to the increased cost of lending seen by other larger lenders having to borrow on money markets rather than lend out their own cash.
It is often the case that smaller lenders have more diverse criteria, so when you’re struggling to find a mortgage these may just come up with something for you. This criteria may be how many years’ accounts they require, or what percentage of benefit income they’ll accept, etc.
It is also thought that to whom and how they lend can be made more flexible depending on the amount of cash available, at certain times being tighter than others. So it’s important to get advice from someone who has a finger on the pulse and keeps up to date with the changes.
The mortgages self employed applicants are eligible for
Any mortgage for self employed applicants will almost always be the same as for employed applicants. Very rarely are there any products that specifically include or exclude self employed people, it just depends on which lender will accept you – so as long as you’re eligible, you should have the same range available as anyone.
Self Employed Mortgage Information
Looking for specialist advice? Read through our articles about different types of self employed situations, and how best to prepare yourself to find the right mortgage for you.