More and more of us are choosing to become our own boss and taking the jump into self-employement. Latest figures show that 1 in 7 of the working population (National Labour Market figures from the Office of National Statistics) are now self employed.
Struggles For The Self Employed
Running your own business can be tremendously rewarding, however it’s not without a lot of blood, sweat and sometimes tears to achieve your business goals. As if it isn’t stressful enough being self employed, a freelancer or a contractor you may also find it is now more complicated to obtain a mortgage. In fact 2 in 5 of those who have or intend to get a mortgage in the future are worried that their working status may make obtaining a self employed mortgage more difficult.
This latest research into self employed mortgages established that 77% of respondents are concerned about being able to effectively shop around in the mortgage market due to their employment status.
So why are the self employed, the group that politicians revered as helping to recover the economy following the economic crash, struggling to find self employed mortgages?
MMR Made Things Tougher
A short trip into history is needed to explain this a little further. In April 2014 the Government introduced the Mortgage Market Review. This new piece of mortgage regulation placed a responsibility upon all lenders to ensure their mortgage loans were affordable not only at point of sale but also in the future when interest rates rise. This change has resulted in some lenders finding it difficult to assess more variable and complex sources of incomes. This includes those needing a mortgage for self employed and contractors, freelancers and any individual with variable pay.
The new mortgage rules were not designed to stop mortgages for self employed, but to ensure all self employed mortgages would be affordable for borrowers. Some lenders who use automated processes and computers to make their lending decisions find it harder to assess affordability for the self employed and have been deterred from lending to this market.
However, there are other lenders who specialise in self employed mortgages. These lenders are often smaller lenders and include regional building societies and some specialist banks. They tend to use something called manual underwriting, basically all their lending decisions are made by their employees and not a computer system or model. This enables them to review each self employed mortgage application on its own merits and apply common sense to their lending decisions. You will still need to provide the same evidence to these lenders but they’ll be applied to assess your application for a self employed mortgage on its full merits.
Using this type of lender can offer those looking for a self employed mortgage the choice to search the market and gain access to more often experienced mortgage advisors who are familiar with self employed businesses and dealing with these in a professional and efficient manner. This understanding and competence is important as 63% of respondents to the self employed mortgage research felt that mortgage lenders did not understand their needs as a self employed individual or that of their business.
Tips For Obtaining A Self Employed Mortgage
Ipswich Building Society have created a useful video which offers self employed mortgage hints and suggestions to help you progress getting a self employed mortgage:
Some thoughts include:
Tip 1: Get your accounts signed off
Make sure you have as up to date accounts as possible, signed off by a qualified accountant and provide a year end forecast and projections for future years. Often lenders will want two years of accounts and trading history, however some may consider below this. You’ll need to ask the lender for their requirements and don’t be shy to ask if there would ever be any circumstances where they would consider adjusting these based on your overall case. Some lenders will be happy to progress your self employed mortgage application with only one year’s accounts if you have worked in the same industry recently.
Tip 2: Get The Income Sorted Up Front
Just like you, most mortgage lenders want the process to be as easy as possible. One way you can help with this is to ask HMRC for a SA302. Providing this to your mortgage lender helps them to establish your income more easily.
Tip 3: Sell Yourself
Don’t be shy about yourself and the success of your business! If you have contracts in place or contracts pending, then share details of these with your lender. These contracts help to show your future income streams and that your business is sustainable in the future. You want to show the lender you are a good lending risk!
Make sure you don’t hide your light under a bushel (so to speak), your own personal experience and success in your industry will also add weight and credibility to your self employed mortgage application. Make sure your lender knows they are dealing with an experienced and successful individual. Some lenders are prepared to waive the need for two years of accounts if you are already experienced in the same business sector.
Tip 4: Budget Meticuluously
Finally, remember to have an overview and evidence of your income and outgoings. This will include bank statements for all your accounts, childcare fees, utility costs, insurances, council tax, shopping bills, etc.
There are options if you are looking for a self employed mortgage, but there’s no doubt that if you are organised and prepared and know where to look your chances of success and a quicker process are much improved. Find out more about Self Employed Mortgages – Product Information.