Before the credit crunch, self-employed people had no trouble securing a mortgage. The process was very simple and all they had to do was state their earnings as part of the application process. As a result, a lot of people were dishonest in order to be able to borrow more.
When the financial crash hit, house prices dropped, and many people were left up owing more than their property was worth. The mortgage industry was forced to reform and put better checks in place for all borrowers, but these checks seem to have hit the self-employed the hardest.
Nowadays, while it might be more difficult to secure a mortgage as a freelancer, it isn’t impossible as many people would have you believe. There are so many myths circulating, and we’re going to dispell all of them today. Starting with…
You can’t get a self-employed mortgage from a high street lender
This myth is common because self-employed people often give up looking for a mortgage if they have been rejected by one lender. All lenders approach mortgages in a different way, so you might not be eligible with one lender, but others might be more than willing to work with you rather than against you. And this includes high street lenders. If you are able to show year-on-year growth of net profit, then Santander and Coventry Building Society are both great options. Those running limited companies can also consider HSBC and Virgin Money.
All lenders will look at freelancer and self-employed accounts in a different way. While some will want to see two year’s worth of accounts, others will ask to see the last 12 months of earnings. Some will take the average of your past few years of earnings while others will look at the most recent year as an indicator of future earnings. In some cases, you can show future contracts as proof of earning potential. It all varies depending on the lender, which is why it is beneficial to work with a specialist mortgage advisor who can point you in the right direction.
There is no such thing as a self-employed mortgage. Once you have passed a lender’s initial checks, you will be treated like any other lender and have access to the same products and services. While some lenders might specialise in working with the self-employed and business owners, the actual mortgage product is the same as other mortgages. This is another reason that self-employed people wrongly assume that they will not be able to get a mortgage. There is a false assumption that self-employed people can only work with lenders that expressly work with the self-employed.
While this is true in some ways, a big deposit can help you to be seen as a better borrower. But this is the case for anyone seeking a mortgage. If you can offer a bigger deposit, you will be a lower risk borrower and the lender is more likely to offer you a preferential rate. This is because a large deposit offers greater protection in the event the value of the house falls. While there are mortgages available for those who can only afford a 5% deposit, these mortgages will be more expensive. If you can secure a deposit of around 20-30% you will find that the interest rate on offer will be much lower.
If you are self-employed and looking for a mortgage, shop around for the best deal and never assume that a rejection from one lender will mean all lenders will reject you.