Self-employed? Get yourself these 7 mortgage tips
Being your own boss has many perks, but a smooth mortgage process isn’t usually one of them. So we’ve thrown down a few tips here to ensure that your application doesn’t have feet of clay.
Back in the bad old days, the self-cert mortgage seemed like a magic wand for all who wanted to own property. People simply filled in the box marked ‘income’ with a figure that would pass muster, and it didn’t matter if this figure was pure science fiction because in most cases no-one would check. Then came the financial apocalypse, regulation tightened up and lenders went (some would say) to the other extreme.
Self-certification mortgages still exist – but lenders now rigorously interrogate your figures. It’s gruelling enough getting a mortgage if you’re salaried – the grilling about your finances can last upwards of an hour – but if you’re self-employed with a fluctuating income, it’s an even more formidable task. You might not convince the lender you can afford this mortgage, and if you do succeed the process may still take longer – enough time for a competing buyer to get in ahead of you.
The good news is, it doesn’t have to be that hard, if you approach your application in the right way. Accept that mortgage lenders will view you in a different light, and then make sure you look your best in it. Here’s how.
Impress them with your accounts
In most cases you’ll need to provide at least two years of recent accounts – the most recent can be no more than 18 months old. To ensure the accounts meet the required standards, hire a chartered or certified accountant to put them together (only one of many ways in which your accountant should be able to help). Have your accountant explain the accounts to you in detail, so you can demonstrate knowledge of them if questioned.
An SA302 form (a confirmation from HMRC of the income you’ve reported to them) may be preferred by some lenders over standard accounts. These can take a few weeks to arrive, so request them in good time. Tax returns may also be requested.
Consider delaying any structural changes to your business
Lenders look for stability, so it may hinder your chances if you’ve only recently changed the structure or type of your business (e.g. from a sole trader or partnership to a limited company). If you don’t want to delay that change, then give the new business structure time to bed down so that the lender isn’t spooked.
Beef up your income if you can
It may be good business sense to retain more profit within the business, but if you’re trying to get a mortgage then it’s an excuse to be more generous to yourself for a while. Paying yourself a higher dividend of the profits can boost your application and will also enhance your savings so you can afford a larger deposit. Once you have your new home, you can readjust your income if you wish, so long as you can still afford the repayments and other outgoings.
Take note of the deposit bands
This applies to all mortgage applications, but it can make an even bigger difference when you’re self-employed. A larger deposit always means lower repayments, but there are also bands above which rates become even cheaper (typically 10 per cent, 25 per cent and 40 per cent). If you’re close to one of these bands, see if you can raise just a little bit more to get past it – it’ll pay off.
Can your partner take the lead on the mortgage?
It might sound obvious, but if your partner is salaried rather than self-employed, it can make more sense for them to be the first name on the mortgage, as their application may be more likely to be approved. Even if their income isn’t quite as much as yours overall, the fact that it’s regular and predictable may count in their favour. Ask your mortgage adviser about this option.
Remember that different lenders may have different criteria
Why would one lender say ‘No way!’ and another say, ‘No problem!’? Because they may consider your earnings in a different way and take different income into account. For instance, Lender A might focus on salary and dividends, while Lender B may base their decision on your operating profit and retained profits. So if you get turned down by one, don’t despair – another lender may say yes without any changes to your income.
Use an independent mortgage adviser who’s a specialist
Find a mortgage adviser who specialises in self-employed mortgages, as they can anticipate any problems in advance and also source the most likely lenders for you from the whole of the market. This reduces the risk of having your application declined. Although one declined application is unlikely to harm your credit score, a series of them might. Seeing an adviser maximises your chances of being approved first time.
If you’re trying to get a good mortgage deal, a lot depends on your credit score. You can check your score, see how it might affect your prospects and even find out how to improve it at Experian CreditExpert.