How to Get the Best UK Self-Employed Mortgages
Have you ever thought about being your own boss? You could set your own hours; make a lot of important decisions; and of course, earn a higher paycheck. However, being self-employed has its drawbacks as well. All errors and problems are ultimately your responsibility; more money means more work; and you cannot avail of several benefits that you can enjoy while working for a company. You may have some difficulty securing health insurance and life insurance; and you will probably have to consider mortgages for the self-employed.
Today is yesteryear
Due to the current mortgage crisis in the UK, Mortgages for the Self-Employed are increasingly becoming rarer. In fact, the current trend is somewhat ironic. Once upon a time (about 10-15 years ago), lenders felt that offering mortgages to the self-employed was too risky and risqué. However, within time, more progressive mortgage lenders began adding mortgage products that catered to the self-employed.
Nevertheless, as one saying goes, "What goes around, comes around." With the current mortgage crisis in the UK, lenders have once again become more reluctant to offer mortgages to those who do not receive set weekly or biweekly salaries.
Looking in all the right places
Still, as a self-employed worker in the UK, the news is not entirely bad. You are still capable of finding solid mortgages for the self-employed. However, you will have to search a little bit longer and harder than before, to find a solid mortgage.
Where can you find mortgages for the self-employed? You could seek the services of mortgage lenders who specialise in self-employed mortgages. Nevertheless, lenders are generally now more receptive to offering mortgages to the self-employed, than they were in the past.
Giving what the lenders are looking for
Regarding lenders, what are the issues for the self employed getting a mortgage? The main criteria that they value, is the extent to which you are employable. For instance, an electrician will have a steadier supply of work than a skiing instructor will. Another factor that they consider is how many years you have been in a certain industry. Essentially, the lenders equate this factor with the tenure that other workers might have working for a particular company.
Conversely, if you have a short-term contract or have been in a particular industry for a short time, you have the burden of proof. You must demonstrate that the risk is not too great for the mortgage lender. In the case that you have a short-term contract, you can bolster your case by presenting a regular contract from the same person or business that has employed you. Typically, contracts that your “employers” have renewed for one or two years, are preferable.
Secondly, in the case that you have just entered a particular industry, mortgage lenders may also be somewhat wary to issue you a mortgage. If you are in this situation, then it is important for you to provide, eventually, proof of income that is regular.
The bottom line on borrowing
You might be wondering if your being self-employed will influence the amount that you can take out, on mortgages. Lenders base this figure on the amount of your earnings and the value of the property that you wish to purchase. How does that translate into actual figures?
The amount offered can vary. Lenders typically loan up to about 75% of the value of the property you wish to mortgage. Usually if you have a high credit rating and a regular income (which is more challenging to prove for the self-employed), securing a mortgage should not be a problem. Although it is not an official figure, in general lenders will offer you a mortgage worth three times your early earnings. If you are fortunate, you can secure up to five times that figure!
The proof is in the paperwork
So how do you meet the mortgage application requirements as a self-employed worker? You are responsible for proving your income when self employed. This could include two or three years of audited accounts, depending on a lender’s requirements. In the case that you have not been self-employed for that long, an accountant could supply you with a letter of confirmation. However, keep in mind that being unable to produce three years worth of audited accounts could require you to supply a bigger deposit.
One consideration as a self-employed worker, is that the majority of mortgage lenders exclusively use one’s net income, rather than one’s gross income, to compute how much they will lend. If you have balanced your expenses against earnings, for tax purposes, this could be problematic.
In this case, you should consider a self-certification mortgage. While the mortgage lender will require you to verify through your accountant that you can make the payments, you will not need to supply a proof of income. Furthermore, select lenders will process a self-employed worker’s mortgage application, even if you lack an accountant.
The fabulous flexible mortgage
Which types of mortgages should the self-employed worker consider? The good news is that, as a self-employed worker, you can virtually pick any type of mortgage that your heart desires. That said, corresponding with the mainstream media’s view, it would be prudent to choose mortgages that are particularly flexible.
A "flexible" mortgage lets you make your monthly repayments based on your changing financial situation, without penalizing you. This is particularly useful for the self-employed, whose income tends to be less regular than the income of those workers that a particular company employs. The "flexibility" can include features such as taking a holiday from payments, making overpayments that are regular or irregular, and making underpayments. Fortunately, many flexible mortgages do not include a higher interest rate.
As easy as 1-2-3.
When you are ready to apply for a self-employed mortgage, simply follow these easy steps:
1. Get organized by preparing your personal finances in an orderly fashion.
Collect documents such as past bank statements, mortgage payments, and pension payments.
2. Check and double-check the documents you will submit.
One lender’s rejection could create a snowball effect, particularly with the mortgage crisis affecting the self employed. In addition, credit reference agencies will retain a file regarding the rejection.
3. Consider the services of a mortgage broker.
They oftentimes have the inside track to find the best mortgage for you.
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