Research and reports
A new report has criticised mortgage lenders for not catering to the needs of the self-employed.
The research from The Mortgage Lender Show comes at a time when Which? are reporting that being self-employed is one of the 10 things that could ruin your chances of securing a mortgage deal.
According to PropertyWire, The Mortgage Lender bases its findings on numbers of sole traders, contractors, and people running a business with fewer than 10 employees based in London, but the picture is likely to be very similar elsewhere in the UK.
The Mortgage Lender Show found that:
Speaking to PropertyWire, The Mortgage Lender’s Deputy Chief Executive Peter Beaumont said:
“Self-employed people are creating employment opportunities and form the backbone of our economy at a time when many large employers are finding it difficult to sustain their business models and levels of employment. It’s important lenders recognise this reality and support entrepreneurs to live in the home they can afford.”
Mr Beaumont also commented that there has been a 53 per cent rise in self-employment since 2000.
Despite the valuable contribution self-employed people are making to the British economy, being self-employed is seventh on Which?’s list of 10 reasons why people struggle to get a mortgage.
From the lenders’ point of view, without regular payslips as evidence that you’ll be able to keep up with your mortgage repayments, they’ll be taking a bigger risk than they would be with an employed person.
Other things on the Which? list of mortgage obstacles include:
While getting a mortgage is likely to be harder if you’re self-employed, it’s not necessarily impossible. According to Which? there are a few things you can do to improve your chances of being given the green light from lenders:
Gather all documentation showing your past earnings and any expected future payments. At least two years’ worth seems to be the standard requirement of most lenders willing to offer mortgages to the self-employed.
Having accounts signed off by a chartered or certified accountant will be required by some lenders. Your accountant should be able to help you strike the right balance between minimising your tax burden while showing that you earn enough to afford your repayments.
SA302 forms show your annual tax calculations. You’ll probably need at least two, if not three, of these forms when you go to apply for your mortgage as a self-employed person.
You can print them from the HMRC website if you filed your tax return online. If you sent a paper copy of your tax return by post, however, you'll need to ask HMRC to send them to you – so make sure you allow two weeks for the forms to reach you.
The more money you’ve saved for a deposit, the less risky a bet you’ll be for lenders.
This will also be helpful if you haven’t been in business that long. Without a long history of accounts, lenders may want a bigger deposit from you before they’ll consider offering you a mortgage deal.
Getting your finances in shape is one of the best things you can do to prove to lenders that you’re good for the money when it comes to repaying a mortgage.
Besides paying off your debts and sorting out any other blemishes on your credit report, it’s a good idea to make sure you’re on the electoral roll.
If you’re knocked back for a mortgage, it could have a knock-on effect when you apply the next time. The best way of making sure you’re applying for a deal that a lender will be willing to give you is to seek the help of a reputable mortgage advisor.
Some lenders may look unfavourably on a change in your business legal structure that comes when you’re in the process of applying for a mortgage.
So even if your sole trader business has grown so much that you’ve decided to form a limited company, you may want to consider holding off until your mortgage application has been accepted.
Need more details on limited company arrangements, or working with a self-employed mortgage broker? Our in-depth guide to getting a mortgage when you're self employed will get you started.
Let us know your thoughts on getting a mortgage when you’re self-employed in the comments below.
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