Self-employed buy-to-let: what you need to know

Being self-employed can be very rewarding. You have the opportunity to set your own working hours and boost your earnings. This can lead to far more lifestyle and income flexibility than the majority of full-time employees.

For many freelancers, diversifying their income streams can be a good way to ensure a steadier income and get out of the feast and famine cycle. Becoming a landlord while self-employed is one way to ensure you always have a steady stream of income.

The availability of buy-to-let mortgages might be shrinking, but they are still a viable option and worth considering if you’d like to get on the property ladder and start earning passive income.

The rules for buy-to-let mortgages have changed a lot in recent years, but it is still possible to make a tidy profit from becoming a landlord. However, becoming a landlord when you are self-employed isn’t easy.

In many cases, company directors will have a harder time purchasing a buy-to-let property than their own employees. That said, it isn’t impossible, so if you’re serious about becoming a landlord, there are steps you can take to ensure your buy-to-let mortgage application is successful.

Lenders will often want self-employed individuals to jump through far more hoops than the average applicant. It’s important to remember that these extra steps are in place to protect you just as much as the lender. Lenders want to ensure they are being responsible and not lending to individuals who might not be able to afford the repayments in six-months time.

With the rise of the self-employed gig economy, more and more lenders are coming around to the idea that some applicants will have a self-employed work history. If you’re interested in becoming a landlord while self-employed, follow these simple steps… For self-employed mortgages this past post.

Get your records in order

Keeping accurate financial records is essential as a freelancer, but it becomes even more important when the time comes to apply for a mortgage. Any lender will want to see at least two year’s worth of financial records, so it’s best to prepare this before you make your application.

In addition to your financial records, lenders will also want to see some other important documents. You should be prepared to present the following in support of your application:

Company accounts for the past 2-3 years. This will vary depending on the lender, but most will want to see at least two year’s worth of accounts.
Bank statements showing regular income
SA302 statements for the past 2-3 years. These are statements from HMRC detailing your tax liability and, therefore, your income.
Evidence of your deposit
Photo ID and proof of address

Is a self-cert mortgage an option?

Self-cert mortgages were designed for borrowers with irregular income, such as the self-employed. This type of mortgage helped many contractors and freelancers to get on the property ladder. Lenders trusted mortgage applicants to accurately represent their income in their application.

Unfortunately, these were widely abused and led to many people applying for more than they could afford. Imagine if you had a strong start to your business but then the hype wore off and your profits dropped. If you applied for a mortgage based on the first few months of trading, you might soon find that you can’t keep up with repayments. For this reason, many lenders will either take the average profit for the past two-years.

This type of mortgage was banned in 2011 amid concerns that lenders were being irresponsible by not confirming income. Lenders must now carry out in-depth affordability checks. You can still apply for a self-cert mortgage through some European providers, but this would not be covered by the same protections as a UK mortgage. With Brexit looming on the horizon, it would be wise to consult with a mortgage provider before going down the self-cert route.

How much can I afford to borrow?

If you aren’t sure what a lender is likely to give you, it’s a good idea to speak with a mortgage advisor. They will be able to look at things like your credit report and your SA302 statements and arrive at a figure that is likely to be accepted by a lender.

Many people head straight to the banks and are disappointed to be turned down for a self-employed mortgage. It’s important to remember that some banks are more likely to lend to self-employed individuals than others. So, a rejection from one lender doesn't mean that you are ineligible for a mortgage. It just means that you might need to adjust the amount you are applying for or try a different lender.

A good mortgage advisor will be able to point you in the direction of the banks and lenders most likely to help self-employed individuals.

Buy-to-let mortgage restrictions

If you are planning to let your property, it’s important to ensure you have the right mortgage. A buy-to-let mortgage will typically be more expensive than a residential mortgage. This is because of the higher risk to the banks. Essentially, you are relying on the rental income to pay the mortgage, but this isn’t always guaranteed.

You will also need a larger deposit for a buy-to-let mortgage. This is typically around 25% of the property value. Some of the best deals require a 40% deposit. Often, the more deposit you can afford, the better rates you will be able to secure.

Things to consider

It’s always best to get your documents in order before applying for a buy-to-let mortgage. It can take up to two weeks for SA302 forms to arrive, so you don’t want this to delay the application process.
Some mortgage providers will require you to have your financial records prepared by a chartered accountant. Bear this in mind when selecting your accountant.
If you’re in full-time employment and thinking about going self-employed, think carefully before taking the plunge. Most mortgage providers require at least two full year’s of accounts before they will consider your application. If you’re thinking about going self-employed, it might be easier to stay in full-time employment until you have purchased your property and let it out. You can then use this financial freedom to make the switch to self-employment.
If you are a company director and you take a basic salary, this often isn’t enough to put you in the full-time employed category. You will still be classified as self-employed and will need to jump through the same hoops. It’s also important to find a lender that will include income from other sources such as dividends and retained profit.
Some lenders will have minimum income requirements for individuals and couples. If one half of the couple doesn’t meet the income requirement, it might be best for one party to apply for the buy-to-let mortgage on their own if they can afford it.
If you already own a property and are looking to expand your portfolio then you should always approach your existing lender first. It’s always easier to work with a lender if you have a pre-existing relationship and a track record of making payments on time.
If you have been in the habit of legally adjusting your income in order to reduce your tax liability, you will need to stop this. When applying for your buy-to-let mortgage, lenders will look at your tax liability as proof of your income so you will want this to be as high as possible, even if this means paying more tax.

A buy-to-let mortgage can be more expensive than a residential mortgage, so it’s important to ensure that you have chosen a property that will deliver a strong rental yield for years to come. It might be more difficult to get a buy-to-let mortgage when you are self-employed, but it isn’t impossible, you just need to know where to look.

Mortgages for Discharged Bankrupts

If you’ve been declared bankrupt in the past, this doesn’t have to mean the end of your dreams of owning a home. Many people assume that bankruptcy means that you’ll never be approved for a mortgage, and while it might be more difficult, it isn’t impossible. We regularly hear from customers who have been declined from their first mortgage application and are quick to assume that the search ends there. However, we’re pleased to say that it isn’t an uncommon situation to be in and there are ways to find a mortgage after bankruptcy.

This type of mortgage might be trickier to set up and you might have to jump through more hoops than the average mortgage applicant. However, it can be done. Once you have satisfied a lender that you aren’t high risk, you will be treated like any other lender. And once you have a mortgage, this can help you to secure other types of credit and start building up your credit report even further. So, if you’re dreaming of owning your own home or want to invest in a buy-to-let property following bankruptcy, don’t give up yet.

What is bankruptcy?

If you are struggling to pay back your debts you can apply for bankruptcy. If you owe over £5,000, your creditors can also apply to make you bankrupt, even if you don’t want them to. Bankruptcy is a legal status that allows you to make a fresh start after 6 years. However, it isn’t something that should be taken lightly. If you declare yourself bankrupt, you may have to continue paying your debts for up to 3 years. You can also have your property seized in order to pay back your debts. If you have been made bankrupt, some occupations won’t allow you to work again, and in many cases, it can be more difficult to secure credit.

As with any type of poor credit, bankruptcy can make you feel like you are on a blacklist of borrowers. The good news is that more and more lenders are committing to help those with poor credit get back on their feet, even those who have been declared bankrupt. If you’re trying to get a mortgage following bankruptcy, this article should help to clear up some of the common misconceptions surrounding mortgages for discharged bankrupts, including:

Mortgages for discharged bankrupts from 1-6 years ago
Securing a mortgage with a history of repossession
Securing a mortgage with bankruptcy and a small deposit of 10-15%
Securing a mortgage with a 5% deposit
Mortgages for discharged bankrupts with a large deposit
But to let mortgage for discharged bankrupts
Remortgaging following a discharged bankruptcy
Bankruptcy annulment and mortgages

How long do I need to wait after bankruptcy before I can get a mortgage in the UK?

Many people assume that they won’t be eligible for a mortgage after being declared bankrupt, but this is rarely true. While you will have to wait until you are discharged before applying, this can be as little as 12 months and even less depending on the court’s ruling. Once you have been discharged, you will then have to focus on rebuilding your credit and ensuring that you look trustworthy in the eyes of lenders again. During this time, you might assume that not taking on any more credit is a wise mood, but this might actually be counterproductive. In reality, you need to show lenders that you are capable of making payments regularly and on time.

In terms of a mortgage application, the amount of time you wait between your discharged bankruptcy and applying will have a huge impact on your eligibility and the amount of deposit required to move forward.

The longer you wait, the lower the deposit you will need and the fewer restrictions that will apply to your application. If you have a good financial contact for 4-5 years following bankruptcy, you might find that you are able to borrow 90-95% of the value of a property just like any other borrower. Even those who have only been discharged for 12 months may find they are eligible for a mortgage with a 25% deposit.

The table below shows typical eligibility for discharged bankrupts seeking a mortgage. As you can see, the longer you leave it before applying, the more likely you are to be able to secure a mortgage with a smaller deposit.

Can I get a mortgage if…?	Declared bankrupt	Bankruptcy discharged	Eligibility	Deposit required
I’m just bankrupt	0 years ago	0	No	N/A
Bankrupt 1 year ago	1 year	0	Low	At least 40%
Bankrupt 2 years ago	2 years ago	1	Low	At least 25%
Bankrupt 3 years ago	3 years ago	2	Low	At least 25%
Bankrupt 4 years ago	4 years ago	3	Med	At least 15%
Bankrupt 5 years ago	5 years ago	4	High	At least 10%
Bankrupt 6 years ago	6 years ago	5	High	At least 5%
Bankrupt more than 6 years ago	6+ years ago	6+	High	At least 5%

Please note that this information can change regularly so you should always consult with a mortgage advisor before making any financial decisions related to mortgages. During times of political uncertainty, lenders might be less willing to lend and those who are considered high risk are often the first to be rejected.

The table above doesn’t guarantee that you will be given a mortgage if you were made bankrupt 6 years ago and have a 5% deposit. Many other factors go into the decision-making process and the time that has elapsed since your bankruptcy is only one of them. If you have a poor credit file, for example, and have done little to rebuild your credit, you might find it more difficult to get a mortgage. However, if you have been responsibly working towards building your credit, you may find you can get a mortgage much sooner.

Here is an infographic we put together to break all stages down in a visual way.

How do I give myself the best chance of having my mortgage approved after bankruptcy?

Bankruptcy doesn’t have to mean the end of the road for your chances of owning your own home or even purchasing a buy-to-let property. If you’re serious about getting your finances back on track, there are steps you can take to start building your credit again. Once your bankruptcy is discharged, you will find it more difficult to get credit, so you should essentially start from the beginning. Follow these steps to building your credit following bankruptcy…

1. Check ALL credit reports and make corrections

There are three main credit reference agencies in the UK and they all have a different system for generating your credit score. Before you can decide if you’re ready to take out a mortgage, it’s important to get a complete picture of how each of these credit checking agencies views your profile.

It’s impossible to know which credit checking agency your mortgage provider is using, and some will use an amalgamation of all three in order to generate a more complete picture. If you don’t have access to the same information, it’s difficult for you to know when you are ready to make your application.

It’s also very common for mistakes to appear on your file following bankruptcy. You might also see some closed accounts still showing late balances, or defaults still cropping up on your file. If you see a mistake on your credit report, you can query this with the company and request that it be updated. It’s not uncommon for individuals to be declined credit because of mistakes on their credit report, but they will assume that it is because of their bankruptcy.

2. Check if you are eligible for a mortgage

Once your credit report is up-to-date, you can then inquire with a mortgage expert to find out if they believe you would be eligible to apply. They are used to working with people from all different financial backgrounds, so don’t assume that they won’t work with you because of your bankruptcy.

3. Rebuild your score until you are eligible

If your advisor recommends that you wait a while before applying for your mortgage, use this time to rebuild your credit score further. A simple way to do this is by making sure you meet your monthly payments on a credit card or overdraft. If you are struggling to get credit because of your history with bankruptcy, you can apply for a credit card specifically for people with poor credit. Use this for small transactions throughout the month and pay it off in full at the end of the month.

What if I have credit issues before or after bankruptcy?

Any credit issues from before your bankruptcy should be wiped out and not pose any further problems. So, if you had late payments, mortgage arrears or CCJs, this should be removed from your credit report once you have been discharged. This usually takes place one year after you have declared bankruptcy.

However, if your credit issues continue after your bankruptcy, this is likely to be seen an unfavourable to lenders. Mortgage providers will already see you as a high-risk customer, and if you have failed to bring your financial situation into line by continuing to make late payments then this might lead to your application being declined.

This is another reason that it is important to keep an eye on your own credit report. Mistakes left on your report could appear to lenders as new credit issues when in reality they should have been expunged from your record following the bankruptcy.

Time heals most things on a credit report, so if you faced issues immediately after your discharge but have improved your credit over a period of 6+ years, these are unlikely to have an impact on your record.

Where can I get a mortgage after bankruptcy?

There are currently around 20 mortgage providers who will accept applications from discharged bankrupts. They all have their own rules and regulations for who can apply and how long they need to wait after being discharged before applying. As outlined above, there are no guarantees when it comes to applying for a mortgage following bankruptcy.

Mortgage providers will consider many different factors when making a lending decision. The best way to find the right mortgage provider for you is to speak to an experienced mortgage advisor with knowledge of mortgage for discharged bankrupts.

Can I get a buy-to-let mortgage after bankruptcy?

Buy-to-let mortgages are some of the hardest to come by, but it is possible to secure a buy-to-let mortgage following bankruptcy. You will need to meet much stricter criteria, usually the following:

Be discharged for at least 3 years.
Have a clean credit score since your discharge
Secure at least a 15% deposit, sometimes even more
Own at least one other property
Have some personal income. There is no minimum income threshold, but you will need to have some income either from employment, self-employment or retirement

Can I use the equity in my home to remove bankruptcy debt?

This is a seldom used route but highly effective in removing bankruptcy from your file. If you are able to pay off the bankruptcy debt within a timeframe set out by the courts, you could secure something known as an annulment. This effectively wipes your credit score clean without resorting to bankruptcy and the discharge period.

Your eligibility for an annulment will depend on how you accrued your debts. For example, if you were forced into bankruptcy by HMRC for failing to pay a tax bill, you could use a secured loan against your home to clear any debts and halt the bankruptcy. This would leave your credit report unscathed and allow you to remortgage your home further down the line.

If you are forced into bankruptcy because of multiple debts, securing a loan to clear off your debts is going to be difficult. However, with a specialist second charge mortgage, you could avoid the bankruptcy process.

Conclusions

As outlined above, there are many options for those dealing with a bankruptcy who want to get on the property ladder. You could use a secured loan against your home to halt the bankruptcy proceedings. Or you can bide your time following bankruptcy and spend the time building your credit report.

Bankruptcy doesn’t have to mean that you can never get a mortgage again. Instead, it simply means that you will need to be wise to the companies that work with discharged bankrupts. A declined application doesn’t have to mean that you cannot get a mortgage, you might simply need to work on building your credit and allow more time to pass.

If you’re not sure how to proceed with your mortgage application, speak to a specialist mortgage advisor. They will be able to look at your situation and decide if you are ready to make an application or tell you what steps you need to make to get your credit report in line. Approaching the right mortgage provider to secure your agreement in principle can give you the confidence to start your search for the right property.

It might be more difficult to secure a mortgage for discharged bankrupts, but it isn’t impossible, so don’t give up!

Getting A Mortgage When Self Employed

It might be harder to get a mortgage when self-employed, but it isn’t impossible! Self-employment brings lots of perks, but unfortunately, many self-employed individuals will tell you that getting a mortgage easily is not one of them. If you work for yourself and are looking to get on the property ladder or remortgage an existing property, this guide will help you to navigate the mortgage process with ease.

Before the credit crunch, it was easy enough for the self-employed to get on the property ladder because of self-certification mortgages. These were aimed at freelancers and contractors and offered a way for them to get on the property ladder without having to share years and years worth of accounts. For those hoping to get on the property ladder while self-employed, the self-cert mortgage allowed applicants to simply tell the lender their income without providing evidence.

Unfortunately, this led to some people lying about their income in order to secure a bigger mortgage. These have now been banned in the UK following the credit crunch as they were prone to abuse. With this type of mortgage banned, it has never been more difficult for the self-employed to get a mortgage. Company directors will often have a hard time getting a mortgage while their employees will enjoy a much more straight-forward process.

If you are looking to get on the property ladder, this guide will tell you everything you need to know about getting a mortgage when self-employed. From choosing the structure of your business to preparing your accounts, getting a mortgage when self-employed might not be easy, but it isn’t impossible.

There’s no such thing as a self-employed mortgage

When applying for a mortgage as a freelancer or sole trader, you aren’t applying for a special type of mortgage. You are applying for the same type of mortgage as everyone else, you just need to jump through more hoops in order to verify your income. If you are being sold a special type of self-employed mortgage, this is often just a business loan which can be used as a mortgage. These will often cost more than a traditional mortgage and you may require substantial collateral.

Once you have jumped through the hoops for a traditional mortgage provider, you will be treated like any other lender. You will likely be able to borrow around four to five times your annual income. If you are applying with a partner, the process may be easier if they are in full-time employment.

What you need to get a mortgage

The key to a successful mortgage application for the self-employed is evidence. You need to show evidence of your income, usually in the form of accounts from the past two years, or your past two tax returns. The more evidence you can provide, the better. In general, you will need:

Two year’s worth of accounts or tax returns
An accountant
Evidence of regular work
A deposit
A strong credit score

Lenders will usually base their decisions on your average profit for the past two years. Some lenders will also request that you have an accountant prepare your accounts. Some will also request that the accountant is certified or chartered, so bear this in mind if you choose to hire an accountant.

A good accountant will know what lenders are looking for and will be able to help you prepare up-to-date accounts before you apply for a mortgage.

If you don’t have two-year’s worth of accounts yet, it doesn’t mean that you can’t get a mortgage. Some lenders will also consider things like evidence of regular work, previous full-time employment or if you can show guaranteed future work. If you already have a mortgage, your existing lender may be able to help. They are far more likely to offer you a mortgage if you have an existing relationship. If you don’t already have a mortgage, one of the best ways to increase your chances of being accepted is to ensure you have a large deposit. At least 10% of the total value of the property is advisable.

How does your business setup change your mortgage application?

There are three main types of business structure and they will all have a different impact on the way your mortgage application is considered.

Sole trader

If you work alone then you will be classed as a sole trader. Keeping accurate records will be fairly straightforward as all of the company profits will be yours. Lenders will often look at your self-assessment tax return when making a lending decision. You should get a form called a SA302 which shows your income, expenses and tax due once you file your tax return. Make sure you provide this alongside your accounts.

Partnership

If you started your business with another person, you may have a partnership. Mortgage providers will want to look at your share of the profit from the business. It’s important that your accounts clearly show your share of the income.

Limited company

Setting up a limited company means that your personal affairs are completely separate from the business. A limited company will have to have at least one director and often a company secretary. Sole traders can also choose to set up as a limited company.

Directors often pay themselves a salary plus dividend payments. It’s important that you make this clear to the lender so that they can take both portions of your income into consideration.

How to prove your income

When you meet with a mortgage advisor, they will want to see your accounts for the past two years. These should be compiled by a chartered accountant who can advise you on how to make sure everything is up-to-date. You should make an effort to ensure you understand everything from your accounts. It makes a far better impression on your mortgage advisor if you can help to explain dips in income or any seasonal trends.

It’s common for self-employed individuals and their accountants to look for ways to legally reduce their tax liability. However, when it comes to applying for a mortgage, you suddenly want to prove that you have a much higher income. If you are planning to apply for a mortgage in the next few years, it would be advisable to speak to your accountant about how best to handle this. They will be able to advise you on the best ways to keep your tax bill down while still ensuring that you have evidence of healthy income.

Another common problem faced is for directors or limited companies. Some directors choose to leave profits in their business rather than take everything is salary or dividends. This is a very common practice and some mortgage lenders will take retained profits into consideration when making a lending decision.

In some ways, it can be more difficult for company directors to get a mortgage than it is for the people they employ. If you are concerned about your income status, a mortgage broker will be able to help you find a lender that will take these things into consideration.

If you are hoping to borrow more than £500,000 then you should ask your mortgage broker to consider private banks as an option. These will often have far more flexible terms and can take a full range of income sources into consideration.

Cleaning up your credit score

When applying for a mortgage, your credit score is one factor that features heavily in the lending decision. If you aren’t sure what your credit score is, there are plenty of free sites that will allow you to see your credit report for free. There are three different credit scoring bureaus in the UK, and each of them will have different criteria. In order to get a more complete picture of your credit score, sign up to each of them.

There are some simple steps you can take to help clean up your credit score in advance of applying for a mortgage. To start with, make sure that all of your accounts are up-to-date and that you don’t miss any payments. Next, make sure that you are using less than 50% of your overall credit limit. Paying off your credit card in full every month is a great way to boost your credit score. And finally, make sure your name is on the electoral register and that your address details are up-to-date.

Your credit score is one part of the mortgage application process that doesn’t take into consideration your self-employed status. However, it’s a good way to show that your income allows you to keep your accounts up-to-date so it’s worth paying attention to this.

Finding the right mortgage

Before you start your search for a new home, it’s important to speak to lenders in order to find out if they will give you a mortgage and how much you can expect to be able to borrow. A mortgage broker can be invaluable for the self-employed as they will have vast knowledge and experience of the industry. They will be able to tell you which mortgages you are more likely to be accepted for and what information you will need to provide for each lender.

A mortgage broker can also help identify which lenders will accept less than two year’s worth of accounts, which ones will consider retained profits, and perhaps most importantly, which will give you the best rate.

Before you start looking for a mortgage, you should make sure that your accounts are up-to-date and that you have your deposit secured. The bigger the deposit you can get, the more likely you are to get a better rate on your mortgage.

Starting your property search

If you have found a mortgage provider that you are happy with and they are happy to proceed, they may offer you something known as an “Agreement In Principle”. This is a statement from the lender outlining what amount they would be able to lend you if you were to go ahead with your application.

Once you have your agreement in principle you can start the house search with confidence. This statement helps to speed up the buying process as it gives you some confidence that you are searching for homes in the right price range. However, it's important to remember that an agreement in principle doesn’t mean that you will definitely have your mortgage application approved.

Lots of things have to fall into place for a mortgage to be approved, and unfortunately, this list gets even longer when you are self-employed.

Self-employed mortgages: Dos and Don’ts

If you are thinking about applying for a mortgage in the next few years, consider the following dos and don’ts.

Do. Hire a certified accountant or a chartered accountant to help prepare your accounts or your tax return. If you are trying to legally keep your tax liability down, an accountant will be able to show you how you can still show healthy income.
Do. Keep accurate and up-to-date accounts. Make sure that you understand your accounts and that you can explain dips in profit or any seasonal changes to your income.
Do. Enlist the help of a mortgage broker to help you to understand your options. They will have extensive experience with mortgage providers and will be able to help you find a lender that is more likely to accept your application.
Do. Reach out to your current lender if you are self-employed and are looking to move house or remortgage your property. They have an existing relationship and may be more likely to accept your application.
Don’t. Change your income too much for tax purposes. This will have a huge impact on your ability to get a mortgage, and it could take years to correct the damage.
Don’t. Give up! It might seem like a headache to get a mortgage when you are self-employed, but it will be worth the effort once you step through the front door of your new home.

For further information, please visit our self-employed mortgage services page.

Can I Get a Mortgage With a CCJ?

A lot of people assume that a CCJ is the end of the road for their finances. CCJs are so feared because many people assume it will land them on some sort of mortgage blacklist and will prevent them from ever getting on the property ladder. The good news is that none of this is true, and even those with a CCJ on their record can often find a way to secure a mortgage.

Finding a mortgage is a headache for anyone, but when you have an adverse credit history, the process can get even more complicated. However, it isn’t impossible to get a mortgage with bad credit, even if you have a CCJ on your record. There are companies that specialise in adverse credit mortgages. A mortgage advisor will be able to help you to find a lender that matches your profile and is, therefore, more likely to accept your application.

More and more lenders are opening up to the idea of approving mortgages for individuals with CCJs. Since a CCJ is just one factor on your record, many lenders are now choosing to look at the bigger picture rather than focus on one component. Every lender will have their own limits as to what they consider to be acceptable, so if you’re ready to put your CCJ behind you and start building your credit profile again, there’s no reason you won’t be able to.

What is a CCJ?

A County Court Judgement, or CCJ, is a type of court order in England, Wales, and Northern Ireland. They are registered against individuals if they fail to repay money that they owe. A CCJ is often the last resort for lenders and it won’t come out of the blue. If possible, you should always work with lenders to find a solution to the problem before a CCJ is registered.

If you pay off the full amount within 30 days of receiving notice of your judgement, you will avoid it being entered on your credit score. Once on your credit report, it will stay there for six years, even if you pay it off in this time. Lenders look at your credit report when making lending decisions and a CCJ on your report can make them less likely to lend you money.

So, how do I get a mortgage with a CCJ?

When making a lending decision, mortgage providers aren’t just looking to punish people with bad credit. They are tasked with finding out about your financial history and using this information to make a decision about the likelihood that you will be able to pay back your mortgage. Having a CCJ on your record isn’t ideal, but it isn’t the end of the story. In general, a mortgage provider will consider the following factors…

Date of the CCJ

The date of the CCJ is perhaps the most important thing that a mortgage provider will consider. If your CCJ was over three years ago, it will be far easier to get a mortgage than if you have had a CCJ registered in the past 12 months.

The date that the CCJ is settled it also of relevance to lenders. Some do not require the CCJ balance to be settled while others will require it to be settled in full for at least 12 months before making a mortgage application.

The amount on the CCJ

The size of the CCJ is another important factor that mortgage providers will consider when looking at your application. Some lenders will have their own limits as to what they consider to be the maximum allowable size for a CCJ. They will weigh the size of the CCJ against things like your deposit and how recently the CCJ was registered.

For example, if the CCJ is over three years old, then most lenders won’t take the size of the debt into consideration. If the CCJ was registered in the past 2 years and are applying for a mortgage of 85% of the total property value, then the maximum CCJ allowable would be around £2,500. A CCJ in the last 12 months should be no more than £1,000.

There are some lenders that will consider higher values, but they will require you to have a higher deposit amount.

Borrowing required

If you have a healthy deposit, then you are more likely to be eligible. Essentially, the most deposit you have, the better your chances.

With a 25% deposit, you could still secure a mortgage even if you have a CCJ registered in the past 12 months.

Number of CCJs

Leaders won’t just look at the amount on the CCJ but also the number of CCJs you have. A single CCJ is less of an issue than 2, and most lenders won’t consider those with more than 2 CCJs registered in the past 2 years.

Lenders are looking for indicators that you could be a high-risk borrower and also want to ensure that your mortgage is affordable.

Is the CCJ repaid?

Most people don’t realise that you can still get a mortgage, even if the CCJ remains unpaid. An unsatisfied CCJ doesn’t automatically mean that lenders will rule you out for a mortgage. Paying off might give you wider access to more lenders, but there are still some lenders that will consider your application, even if the CCJ remains unpaid.

Sometimes, retaining the money for a bigger deposit makes more sense than paying off the CCJ.

The type of mortgage

There are many different types of mortgage and the kind that you choose could impact your eligibility for a mortgage. A standard purchase mortgage offers the best chances of success with a CCJ on your record. Likewise, a remortgage application is likely to be accepted provided you meet the other requirements such as a healthy deposit and regular income. A secured loan against an existing property offers some of the best chances of success for an applicant with a CCJ.

If you are applying as a first-time buyer, the lender might have further restrictions for applicants with CCJs. For example, they might want to see evidence of satisfactory rental payments or they might place a limit on the CCJ amount of around £1,000.

Buy to let mortgages are perhaps the most difficult to access with a CCJ, but again, it isn’t impossible. In most cases, the lender will require a much larger deposit, or they might make you wait for longer than with a residential mortgage.

Your whole credit profile

A CCJ is an indicator that one or more of your loans went unpaid. Lenders recognise that it’s easy to get into financial trouble and that people shouldn’t be punished forever for falling behind with payments. This is why most lenders will look at your credit profile as a whole when making lending decisions. Late payments in the past 2 years can be overlooked if you have a healthy deposit of above 15%. More severe issues such as IVAs, repossessions or bankruptcy can be a lot more problematic.

When shopping around for a mortgage, it helps if you have a complete picture of what situation you are in. Download your credit file from the three different UK credit referencing agencies so that you have a complete overview of how lenders look at you. If you only had one credit account and this resulted in a CCJ, it’s important that you start building up your credit as soon as possible. Lenders want to see a track record of you making payments on time. Time can heal most issues on a credit report, so the sooner you start demonstrating that you can be responsible with money, the better.

Affordability

Above all else, lenders look at the affordability of the loan. They want to make low-risk lending decisions and so they want to lend to people who can afford the repayments. They will look at your income, your existing commitments and make a decision on how much they are willing to lend. Most high street mortgage providers will offer around 5x your annual salary, but when you are working with more niche mortgage providers, this might be reduced to 4x your annual salary.

Check your eligibility for a mortgage with a CCJ

The following table outlines the different conditions and considerations that lenders take into account when making lending decisions. As you will see, a higher deposit means that a CCJ will have less impact on a lending decision. Likewise, time can help to heal most issues with your credit.

Lender	LTV*	Date of CCJ	Date paid off	Other factors
1	95%	All CCJs over 3-year’s old ignored. Declined if registered in last 3 years.	Does not need to be repaid.	No other adverse credit history. Occasional late payments permitted.
2	85%	2 allowed in the last 2 years. No more than £1000 in the past year and up to £2,500 in past 2 years. Ignored after 2 years.	Does not need to be repaid.	Maximum of 2 late payments per month and 2 defaults permissible. No other adverse credit history.
3	80%		Does not need to be repaid.	Maximum of 2 late payments per month and 2 defaults permissible. No other adverse credit history.
4	75%	No defaults in the last year.	Does not need to be repaid.	Only considers adverse credit history from the past 12 months.

*Maximum loan to value

As you can see from the table, different lenders will approach CCJs in very different ways. The theme that links all of these situations is that a CCJ doesn’t have to mean the end of the road for your mortgage application. You don’t even have to wait six years for it to be removed from your record if you have a healthy deposit and your credit report is otherwise clean.

When shopping around for a mortgage provider that will accept CCJs, it’s important to shop around just as you would with a regular mortgage. There are plenty of niche mortgage providers out there that will still consider your application, so don’t assume that you can’t get a mortgage if your first application is rejected.

Building your credit with a CCJ

If you need to work on building your credit up following a CCJ, there are a few simple steps you can take to speed the process along.

It can be difficult to apply for new credit cards and bank accounts with a CCJ, so focus on the ones that you have. Try to always remain within your credit limit and don’t use more than 50% of your credit allowance at any one time.
Focus on making payments on time and building up a track record of good behaviour on your accounts.
If you have a credit card, use it wisely. Paying off your credit card in full every month is an excellent way to build your credit score. Use your card for everyday payments such as food shopping and transport and then pay it off every month.
Make sure everything is up-to-date, including your address details and your open accounts. Leaving accounts open at old addresses is a red flag for many lenders, so make sure everything is paid off and then closed.
Query anything that doesn’t look right. It’s not uncommon for people to be landed with additional CCJs for small amounts, such as old phone bills that weren’t disconnected properly. You might not even be aware of these if the registered address isn’t up-to-date. If something on your credit report looks wrong, don’t be afraid to query this with the company and ask for written confirmation if something is wrong.

While CCJs on your record might not be ideal, it doesn’t mean that you can’t get a mortgage so you should never give up. Work on building your credit and ask for help from the right people if you are serious about getting a mortgage.

Repairing and Building your Credit for a Mortgage

The following advice is based on the experiences of the advisors working for us. The actual credit checking process used by lenders is unknown and difficult to predict. Credit checking agencies provide the basic information and it is down to the lenders to interpret this information.

The information laid out below can help you to improve your credit score, but this doesn’t guarantee that you will be accepted for a mortgage.

If you’ve found this page via a Google search, chances are you have been turned down for a mortgage. If this is the case, don't panic. Every lender has their own unique criteria for assessing your credit score and financial situation. Even people will flawless credit scores can sometimes find it difficult to get mortgages with one provider but have no troubles with another. This means you may be eligible for a mortgage, you just haven’t found the right provider yet.

The factors outlined below can help to increase your credit score, which in turn is a strong signal to lenders that you are responsible borrow. Failing to achieve one of these components is unlikely to make you ineligible, but it might mean you need a bigger deposit or that you can only borrow 4x your income rather than 5x your income.

The first step to repairing and repairing your credit report is to find out where you stand. You can access your credit file for free using any of the following websites. As there are three credit checking agencies in the UK, it’s worth signing up for all of the free credit score sites as this will help you to gather a more complete picture.

Sign up for a free trial with Check My File, Experian and UK Credit Ratings.

It’s a common myth that you will be penalised every time a credit search is completed. This is true. You can check your own credit report as many times as you want and this will never be taken into consideration by lenders. It’s only applications for credit which will show up on your credit profile.

A mortgage advisor will be able to read between the lines of your credit report and tell you which lenders are more likely to accept your mortgage application.

What if I have no credit history?

People often assume that having no credit history is a good thing. After all, this means that they have never been in debt. In reality, this couldn’t be further from the truth. When trying to decide if they should lend you money, lenders want to see that you have a track record of being able to make repayments regularly and on-time. If you never borrow any money, they have no evidence of this.

Even if you don’t need to borrow any money, it’s still a good idea to get a credit card. You can use the card for everyday purchases like your weekly shop or petrol. It’s also helpful when shopping online as a credit card will offer additional protection. Set up a direct debit to pay off the card in full every month and make sure you never go beyond your credit limit. This is one of the best and easiest ways to build up a strong credit score.

Here are some further steps you can take to repair and build your credit for a mortgage…

Check everything is up-to-date

The first step should be to make sure that everything is up-to-date. Go through your file and check every detail. Pay close attention to your open accounts and make sure that they are all current. If you have old accounts still open, make sure you pay them off and get them closed. You should also ensure that you address is up-to-date and that you don’t have accounts listed at old addresses.

Challenge mistakes

If you have mistakes on your file related to things like payment history, arrears, CCJs or defaults, challenge these with the provider. If you are correct, you can ask them to provide written confirmation of the error and also ask them to update the information with the relevant credit checking agency.

Get on the electoral roll

The electoral roll is the best way to confirm your address. Make sure you are present on the register and that your details remain up-to-date. If you move house, make it a priority to update your address on the electoral roll and with your bank. This is how banks keep track of you and can make you a more attractive lender if they have a complete address history.

Don’t miss monthly payments

If you have a credit history scattered with late payments, this will reflect poorly on your credit score. Even just one missed payment can negatively impact your score. Make sure you make payments on time every month and try to keep this up for 6-12 months before making your mortgage application. Even if you have a history of late payments, an extended period of making sure everything is on time can help.

If you are declined credit, wait to apply again

When you are declined credit, this credit search will show up on your credit application. If you make another application in a short space of time, the second one will likely be rejected. Avoid making too many credit applications in a short space of time. Wait around 6 months between credit applications if possible.

Keep your spending in check

As a general rule, you should never be using more than 50% of your total credit limit. This includes things like credit cards, overdrafts and store cards. Credit cards should be paid off in full at the end of the month. You should also avoid your overdraft if possible. It’s helpful to be able to use your overdraft for occasional emergencies, but you should avoid remaining in your overdraft when possible.

One of the biggest risks with being close to your credit limit is that it’s a lot easier to go over your limit from this point. Regularly going over your agreed spending limit reflects very poorly on your credit rating.

Settle all debts

The key to clearing debt is to focus on the most expensive one first. This is usually your credit card, but if you have high-interest loans, it might make more sense to focus on these first. Working towards clearing debt and closing accounts can help to improve your credit score.

Even if you have something in your credit history like a CCJ, the sooner you can get this paid off, the better. A CCJ that was cleared one year ago might be a big concern for lenders, but if it was cleared four years ago and you have a clean history since then, this is far more preferable. Remember, when it comes to credit scores, time can heal most problems.

Focus on one, well-managed account

It’s common for people to have multiple bank accounts which are used for different types of spending, however, it’s helpful if you can focus on building good credit for one account. Move all of your ingoings and outgoings to one account. Having regular income and making regular payments from one account is a great way to build your credit score.

What if I’m on the credit blacklist?

There’s no such thing as a credit blacklist. Everyone has a credit file and this is what lenders use to decide if you are a safe lending option. If you are repeatedly declined credit and you do nothing to change your credit rating, it can start to feel like you are on a blacklist. However, you need to remember that time heals most issues with credit scores. Make the changes outlined above and bring your spending under control and you should see an improvement.

How do I get a mortgage with a low credit score?

Being declined for a mortgage can feel like the end of the road for your dreams of being a homeowner, but this isn’t always the case. If you are declined for a mortgage, there are so many reasons this could happen and the first step is to find out why. Once you get to grips with your credit file, you can then speak to a mortgage advisor who will be able to find the right lender for you. There are even lenders who specialise in poor credit, so don’t give up.

How do credit scores work?

Credit scores don’t tell lenders if they should or shouldn’t lend you money, they merely give the lender the information about your financial situation and habits. It is then down to the lender to decide if they think you will be able to keep up with the repayments. Lenders have to show that they have been responsible in their lending decisions and so they look at your financial history as an indicator of future behaviour.

Speak to an Advisor to see how they can help.

A Guide To Mortgages for The Self-Employed Without Accounts

For many people, being self-employed is all about freedom. You have the freedom to choose your working hours. You have the freedom to work from home, a coffee shop, or to rent your own office space. While these are all wonderful perks of the job, there are some areas that aren’t as easy to navigate when you are self-employed.

When it comes to buying a home, being self-employed can be seen as quite a burden. Applying for a mortgage without a fixed full-time job means that you’ll need to jump through a lot more hoops in order to prove your income. However, if your business is quite new, then this can get even more complicated. Mortgage providers often want to look over your books. So if you don’t have at least two year’s of accounts, it can be difficult to prove your income.

Remember that mortgage providers want to see that you’ll be able to afford to keep up with payments. For the self-employed, this means that they are going to want to see that your business has a track record of success and that you will have the means to continue to support yourself in future.

Some companies out there will offer a business loan which can be used specifically for a mortgage. While this is a possible route, you will need to consider if you want to entwine your home with your business. The loan will often be more expensive than a traditional mortgage and the provider will often want to see a substantial amount of collateral, usually your property.

Can I get a self-employed for a brand new business?

If you have yet to file a tax return for a full year of trading then you will struggle to find a mortgage provider that will consider your application. Lenders have to show that they have been responsible lenders. This means that they always base their lending decisions on evidence of affordability, which doesn’t always seem like common sense.

Without evidence of your income in an official document, such as a tax return, it can be difficult to prove that you have regular and reliable income. Your business might be reliant on income from just other company or client, which puts your business at risk. Your business might be seasonal, and the first six months of trading might look more favourable than the next six months. These are all things that lenders need to consider, so the more evidence you can give them, the better.

Secure your Agreement in Principle (AIP)

Once you are nearing the end of your first year of trading, you should have a tax return to show your income and a full year of accounts at your disposal. At this stage, you might be able to secure something known as a mortgage Agreement in Principle (AIP). This is one way to get an indication from your lender of how much they would be willing to lend you. It lasts for three months and is used to help speed up the home buying process. It allows house hunters to start their search with a budget in mind. Once they have chosen their property, they can then make the final mortgage application.

How does this help self-employed house hunters? Since it lasts for three months, you can start your search for your home before the end of your first year of trading. It allows you to work out, before you actually put an offer in on a property, how much you can afford to borrow.

Why is more difficult to get a self-employed mortgage?

Since it’s harder for the lender to confirm how much you earn. It makes it harder to determine if you are a high-risk borrower. If you’ve been trading for more than three years. Or you have a trading history and accounts to back up your application. For newer businesses, it’s far more difficult to determine future earning patterns.

Why can’t I just give them an estimated income?

Self-certified mortgages are now a thing of the past. Since the recessions and the Mortgage Market Review, these have been phased out as they were prone to abuse. The self-cert mortgage allowed borrowers to tell the lenders what they were earning without providing any proof. This allowed people to inflate their incomes in order to be able to buy a bigger property.

What is the maximum I can borrow when self-employed?

Once you can prove your income and the lenders are satisfied with the evidence provided, you will often be treated like any other applicant. Most applicants can borrow between 4-5x their annual income. If you can offer a larger deposit, this is also likely to help your mortgage application and can help you to secure a better mortgage rate. Even though you might feel like your application if more difficult, you should still shop around for the best deal.

The longer you can wait to apply for your mortgage, the better chance you have of being accepted. And you don’t have to wait until the end of the tax year to apply. For example, if you’ve been trading for 21 months, you’ll have a full year of income plus 10 months of your second year. Lenders will be able to use your past trading history to project your income for the remaining few months of the year.

If you are newly self-employed and thinking about buying a home, the best thing you can do is make sure you keep accurate accounts and fix your taxes correctly. If you can afford to hire one, an accountant can help you to keep accurate records of your income and offer advice on how to make yourself look like a more attractive borrower. However, you don’t need to employ an expert to be able to get a mortgage while self-employed. You can increase your chances of being accepted if you are applying with a partner who is employed full-time.

Speak to an Advisor to see how they can help.