Mortgages for the Self-EmployedDave Walton
You Can Own a Home Even If You’re Your Own Boss
Let’s not beat around the bush: if you’re self-employed and have ever tried applying for a mortgage, you know the struggle is real. Nightmarish anecdotes are as common as London’s grey skies. But, just as the sun sometimes breaks through the clouds, securing a mortgages for the self employed isn’t an unattainable dream. In fact, it might be easier than you think, if you know how to play your cards right.
Table of Contents
- The Self-Employed Dilemma: Perception vs. Reality
- The Factors That Make or Break Your Mortgage Chances
- Understanding Mortgage Requirements for Self-Employed
- The Action Plan: Preparing for Your Mortgage Application
- Closing Thoughts
The Self-Employed Dilemma: Perception vs. Reality
Why Lenders Get Cold Feet
Okay, so you’ve struck out on your own—no boss, no nine-to-five, and maybe, just maybe, a home office with a killer view. Why, then, do mortgage lenders act like you’re a character in a horror film, riskier than a weekend in a haunted house?
The answer boils down to one word: stability. Your salaried cousin Jane can waltz into a bank, flash a couple of payslips, and walk out pre-approved because her income is as predictable as a British summer. You, on the other hand, might not have that luxury. Being self-employed often means your income graph resembles a roller coaster rather than a straight line. Lenders are risk-averse creatures; they’re looking for Mr. or Ms. Reliable, not a ticket on the Big Dipper.
What About Your Tax Deductions?
Let’s not forget how most self-employed folks, perhaps yourself included, approach tax season like a game of Monopoly. You deduct every expense you can to pay Uncle Sam (or should I say, HM Revenue & Customs) as little as possible. While that’s smart tax planning, it’s also like shooting yourself in the foot when applying for a mortgage. If your reported income looks like you’re living on beans and toast, lenders will naturally think you can’t afford to buy a house, even a small one.
Does the Lender Matter?
Oh, you bet! Mortgage lenders aren’t a monolith. Think of them like pubs. Some are trendy and hip, flexible in their approach to your finances. Others? They’re more traditional, with a stiff upper lip, turning up their nose at anything that doesn’t fit the norm. The point? Shop around. The options you get will differ vastly between lenders, just like the difference between a property in Central London and one in the Welsh countryside.
But does this make owning a home an unscalable mountain for the self-employed? Not at all. It’s more like a steeplechase—more hurdles but entirely doable.
The Factors That Make or Break Your Mortgage Chances
The Essential Elements: Proof of Income
Now, let’s get to the nitty-gritty. For mortgages for the self employed, what exactly do you need to get that elusive mortgage approval? First up, proof of income. While your salaried friends just need a few payslips, you’ll need something that shows a broader picture. Typically, this means at least two to three years of:
- SA302 forms: It’s your annual tax summary, courtesy of HM Revenue and Customs. It’s as crucial as tea to the Brits.
- Business accounts: If you’re the proud owner of a limited company, you’ll likely need to show your profits and losses over the years.
Credit Score: Your Financial CV
Just like in the dating world, your reputation precedes you, and that’s where the credit score comes in. A low score is a red flag, perhaps suggesting you’re not the most reliable individual when it comes to paying back money. So, check your credit report meticulously. Got a credit card you don’t use? A default from yesteryears? Address these issues before they scuttle your mortgage ship.
Here’s where you can really shine. A chunky deposit isn’t just good for reducing your loan-to-value ratio, which makes lenders happy. It also shows you’re serious about this homebuying business. Aim for at least a 20% deposit; it could be the difference between a ‘yes’ and a ‘no’.
The Affordability Check
Lenders don’t just want to know if you can repay the mortgage now. They want to know if you can still afford it even if interest rates soar like London property prices. This is where the affordability assessment comes in. So if you’ve been spending like you’re on a shopping spree in Harrods, it’s time to tighten those purse strings.
The Stability of Your Business
Yes, you might also be quizzed on your business itself. How long have you been running it? What’s the outlook for your sector? A well-laid-out business plan can be your ace in the hole.
The Action Plan: Preparing for Your Mortgage Application
Get Your Ducks in a Row
Keep all your financial documents in good order. This means tax returns, business accounts, personal and business bank statements—the lot. The more transparent and organised you are, the easier the process will be.
Boost That Credit Score
Pay your bills on time, keep your credit utilisation low, and don’t open new lines of credit leading up to your application. Think of it as prepping for a marathon; it’s the day-to-day habits that get you over the finish line.
Save, Save, Save!
Nothing says “I’m a responsible adult” like a hefty deposit. Save until it hurts, then save some more. It’ll make your mortgage journey far smoother.
Consider a Mortgage Broker
Sometimes you need a wingman, or in this case, a mortgage broker. They can guide you through this labyrinth, potentially connecting you with lenders that view your self-employment as an asset, not a liability.
Being self-employed doesn’t mean you’re locked out of the property market. You can get a mortgage for the self employed; you just need to approach it differently. With diligence, preparation, and perhaps a bit of professional help, you can go from being self-employed to being a homeowner. The journey might have more twists and turns, but the destination is entirely reachable. So why wait? Put on your best foot forward, and let’s turn that dream home into a reality.