Self-Employed Mortgages - What you need to know
As a self-employed person, you might be unsure of how to go about finding a mortgage or whether you’re even going to be able to do so. However, it certainly is possible for self-employed people to secure suitable mortgages.
Self-employed mortgages are now available from a range of lenders. These specialist self-employed mortgages are great, and there are also a range of standard mortgages that can also be secured by self-employed people too.
There’s no doubt that getting a mortgage is made a little harder when you’re self-employed compared to being an employee of a company, but it’s far from impossible. And with the help and services we provide here at Home Financial, you might find the process of getting the right mortgage much easier.
The Application Process for Applying for a Self-Employed Mortgage
Being self-employed doesn’t stop you from applying for regular mortgages and you’ll find that most lenders will not reject you based on this. In that sense, applying for a mortgage as a self-employed person is much the same as applying for a mortgage as someone who is salaried.
Before you begin the mortgage application process, it makes sense to get the basic things right, such as building up a healthy deposit, ensuring your credit rating is as strong as it can be and having a regular income. You’ll then move through the application process as anyone else would.
You can improve your chances of getting accepted as a self-employed person by completing your tax return to prove your income. And having an accountant organise your accounts and taxes will also help your case. Using our brokerage services will also put you in a better position when it comes to applying.
The process is different for self-employed people in that you’ll be expected to provide proof of your income for at least one year but more likely the past two or three years. This is something that your lender will specify.
Arranging a Self-Employed Mortgage
So, what do lenders look at when arranging a self-employed mortgage? They’ll want to see your trading history and have accounts or self-assessment tax returns that cover that period.
In terms of calculating your mortgage, lenders will look at the legal status of your enterprise. For sole traders and partnerships, they’ll take a look at the net profits and judge this in the way they would judge a salaried person’s income.
For limited companies, lenders will look at the salary you’re taking as well as any dividends. That’s how it works in most cases but it can sometimes be the case that they’ll look at the net profit of the company as well.
What You Need to Know About Deposits, Borrowing and Fees Associated with Self-Employed Mortgages
When building up your deposit, bigger is always better. But that’s not something that’s specific to you as a self-employed person. That’s true of anyone looking to secure a mortgage. You’ll be required to have a mortgage of at least 10% but with the ongoing Covid-19 crisis, many lenders are now looking at 15% deposits from borrowers.
To be safe, it makes sense to aim for a 20% deposit if you can, but there’s no reason why you can’t be accepted for a mortgage with a smaller deposit than that.
Lenders will also want to see that your income is stable, so avoid making big changes to your career and business dealing in the run up to your application. If things look uncertain and unstable, lenders might be put off.
What Covid-19 Means for Self-Employed Mortgage Lending and Borrowing
There are changes in the mortgage lending sector generally as a result of the Covid-19 crisis and the impact it’s had on work, employment and the economy. Many lenders are now being more cautious when it comes to lending.
For self-employed people, this means that many lenders are now looking at recent turnover figures on top of the historic records they’d usually assess. In short, this means they want to see how or if the crisis has significantly impacted your turnover compared to your turnover in previous years.
This is all to ensure that mortgages remain sustainable and manageable for borrowers. The self-employed income support scheme has been used by many self-employed people and is accepted by most mortgage lenders as legitimate income, the same as any other form of income.
How Do Self-Employed Mortgages Work?
In terms of how a self-employed mortgage works once you’ve secured it, there’s not much difference between these mortgages and regular mortgages. You simply need to make sure that you present your income in the correct way when making the application.
When the application has been accepted and you’re in your new home, the process of paying off your mortgage will, in most cases, be the same as for a salaried individual.
You’ll be bound to the terms and conditions outlined in the mortgage and your payments will be set in advance. Of course, these payments might change depending on interest rates and the nature of your mortgage. But that all comes down to the type of mortgage you’ve chosen.
Get in Touch with Home Financial Today
Don’t hesitate to get in touch today if you want further help from our team. Our mortgage brokering services can help you to find the mortgage that’s best suited to you as a self-employed person.
You can contact us via phone or email and arrange a time to speak to a member of our team and the consultation process can then begin. We’ll work hard to ensure you find a mortgage that works for you.