The process of buying a home is complicated at the best of times. Throw self-employment into the mix and you’ll have a recipe for months and months of headaches. The reality is that there isn’t a specific type of mortgage for the self-employed. It’s just that they are treated quite differently from their salaried counterparts.
Imagine those with a full-time job being asked to produce two year’s worth of payslips. Or being asked to have a chartered accountant present their tax return. Or being asked to explain the increase in earnings following a pay rise. Or having their payrise disregarded in favour of taking an average of their last few years of earnings. It sounds ridiculous, but this is what self-employed people face every day. Business owners who run a limited company can often find it more difficult to secure a mortgage than the very same people they employ.
If you’re self-employed and want to take the stress out of sourcing a mortgage, follow these simple steps to get everything in order.
While it’s true that there is no such thing as a “self-employed mortgage” there are some mortgage providers who are more inclined to lend to the self-employed than others. It’s not true that you should ignore the high street in favour of niche mortgage lenders. In fact, Santander and Coventry Building Society both have a strong track record of helping the self-employed to secure mortgages. If you run a limited company, you should consider HSBC and Virgin Money. Be sure to shop around and don’t assume that one bank turning you away means that all banks will turn you away.
It’s common for the self-employed to make legal adjustments to their tax in order to lessen their tax bill. When you are thinking about getting a mortgage, you want to avoid doing this. Many mortgage providers will base your earnings on how much you declared in your tax return. They might look at the last year or the last two years. You want this number to be as high as possible without lying as this will increase your chances of being able to borrow more.
Most mortgage providers will want to see at least two years of accounts. However, an increasing number are satisfied with 12 months if you can show evidence of future earnings. Some will even take employed earnings into consideration if you are working in a similar industry. For example, if you used to work for a company and then switched to contracting and work for the same company, this can count towards your evidence of earnings. This will depend on the lender, so if you are in this unique situation, you should make sure you shop around.
Most people don’t even think about their credit report until the times comes when they need it to work for them. You can’t fix what you can’t see, so make sure you are signed up with all of the major credit reference agencies. These are Experian, Equifax and Callcredit. Once you can see how each credit reference agency views your file, you can move forward with confidence.
Fix any issues with your credit report and make sure all addresses are up to date. If there are any accounts still open which should be closed, make sure you get this seen to. If you don’t have much credit history, a credit card with a low limit can help. Spend a little every month and pay it off in full. This helps to build a history of making payments and makes you a safer borrower.
If you are self-employed, getting a mortgage might be a little more complicated, but it is possible, so you needn’t give up on your dream of home ownership just yet.