By Paul Winter, Chief Executive of Ipswich Building Society
Being self employed and running your own business is tough, but rewarding. Success often comes with sacrifices, such as time with the family, holidays and weekends. However it now seems that it may also be your ability to buy your own home that is also under threat.
A recent survey about mortgages for self employed has identified that 2 in 5 of self employed people with a mortgage or planning to get one are concerned their employment status will make it harder to find a mortgage. 77% felt they would experience less access to the mortgage market due to running their own business.
The new requirements introduced through new mortgage regulation in 2014 have impacted how mortgage lenders operate and the approach they take to agreeing mortgages. All mortgage lenders are now required to fully evidence that every mortgage they lend is affordable for the borrower. This means the lender needs to evidence the full income and expenditure of every applicant and from this calculate if the applicant has sufficient funds to afford the mortgage at its current interest rate and in the future at higher rates. This can be complicated enough with a salaried occupation for those who are self employed or have variable and fluctuating pay such as freelancers and contractors it is even more complex!
This complexity has led to some mortgage lenders not serving the self employed mortgage market. Often larger lenders who use automated processes and computer models to make their lending decisions do not have the ability to review the many different factors pertaining to a self employed mortgage case. However, options do exist for those looking for a self employed mortgage. There are lenders who use manual processes and real people to make their lending decisions, this means they can assess more complex sources of income and apply common sense in their decision making. More often these lenders will have products accessible to those wanting a self employed mortgage.
Have these signed off by a fully qualified accountant, and include a forecast to year end if applicable. Include projections for business performance in future years. This will help the mortgage lender assess your affordability now and in the future. Most of the time lenders will prefer to have at least two years of accounts upon which to base their affordability decision, however there are some lenders who will accept less than this if the business owner already has experience in the same sector.
Lenders often like to see a SA302 from HMRC. It can save time to have this ready.
A Good Lending Risk
It may sound obvious but lenders not only want to check the mortgage is affordable but also to understand that the person wanting a self employed mortgage is a good lending risk. Providing copies of contracts and their time frames and any pending contracts can help to establish the credibility of a mortgage application. Business owners should also be prepared to share their own expertise and calibre in their business sector. Some lenders will consider experience as part of their overall decision to lend.
Household expenditure and any other income sources
All mortgage applications including mortgages for self employed, need to have to copies of bank statements, details of costs such as childcare, insurance, food budgets, council tax and any expenses that you incur. If there is another applicant for the self employed mortgage then they will also need to provide details of their income and expenses.
There are options available for those wanting a mortgage for self employed. Finding the right lender who offers dedicated self employed mortgages or is happy to lend to self employed people is essential. This combined with preparation and organisation should stand most self employed mortgage applicants in good stead.