In this blog, our Huddersfield-based mortgage broker answers the most common questions asked by self-employed people when applying for a mortgage…
Over 4.7 million people are self-employed in the UK — that’s a whopping 15% of the whole working population (31 million). And it perhaps comes as no surprise, when the benefits of being your own boss are increased flexibility, autonomy and, often, less commuting time.
But, one of the biggest drawbacks to self-employment is a lack of job security — something that many ‘solopreneurs’ cite as the most difficult part of being a freelancer.
This is also the reason that banks can sometimes be more reluctant to lend to people who work for themselves. After all, one way they assess borrowers is job and income security.
So, here are the answers to a few common questions we get asked:
1. Do I need two years’ worth of accounts?
The lenders will usually want to see your latest 2 years accounts and will normally assess affordability on your average profit from the past two years. If you’re registered as self-employed, this will be your net profit, whereas if your business is a limited company, the lender will often take into account your take-home salary and dividends. Sometimes they may consider your salary and net profit, but each bank will differ.
There are also some lenders that would consider someone with just one full year of accounts — so it pays to speak to a mortgage broker who understands the market.
2. Do I need to use a chartered accountant?
Lenders will require up-to-date accounts and often prefer it if you have employed an a
accountant. However, if you use the self assessment process, they may ask to see your Tax Calculation (SA302) and Tax Overview Form. This form can take a couple of weeks to arrive so leave yourself with enough time!
3. Do I need a bigger deposit?
A bigger deposit will mean smaller repayments, but there are also bands at which the rate will become cheaper. If you’re close to one of the thresholds (for instance 10%, 15%, 20% 25% and 40%), then try to save a bit more to qualify — it might make you a more attractive prospect in the eyes of the lender!
But if you have a deposit of just 5%, then all is not lost — there are still banks who may consider you!
4. Do I need a good credit history?
A clean credit record will also boost your chances of being accepted. We recently authored a blog on this very topic — have a read to find out how you can improve your score.
5. Should I use a mortgage broker?
Finally, using a reputable mortgage advisor is usually better than ‘going it alone’. We know which lenders are comfortable with borrowers who are self-employed and can cut out the ones that aren’t. We will also ensure that you have any necessary paperwork in place, potentially helping you to save time and hassle.
So, if you’re self employed and looking for a mortgage in Huddersfield, Halifax, Elland, Brighouse or any other surrounding areas, then get in touch with our mortgage advisor for a no-obligation consultation!
Your home may be repossessed if you do not keep up repayments on your mortgage.
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