Written by: Fiona Denton
Self-employed mortgages readily available
Anyone with even a passing interest in the UK mortgage market will tell you what a minefield it is nowadays, with post-crunch lenders nowhere near as generous as they were 6 years ago, but people are still borrowing, and plenty of them are self-employed.
Despite lenders now having a reputation for only giving money to people who work 9 to 5 and live a textbook-style existence however, self-employed applicants are still getting their share of the deals to be had from the UK mortgage loan pool – but the approach needed is very different.
What do the mortgage experts think?
We spoke to Kerry Duncalf, a certified mortgage adviser for over ten years, for the lowdown on how things have changed and what to do about securing yourself a decent mortgage if you’re one of the elite group of warriors who pass up the cosy, cushy delights of corporate life and go it alone.
“Pre credit-crunch in 2008 was often referred to in the industry as “the good old days”. It was extremely easy for a self-employed person to get a large mortgage”, Kerry explained . “Self-Certification mortgages were widely available with a low deposit and people were able to state what their income was if they were self-employed and quite often were literally able to pluck an income figure out of thin air and this was used to calculate their loan amount”.
Self Cert “liar loans”
With no proof of income needed, these loans were often thought of as “liar mortgages” – yet amazingly were considered perfectly acceptable, with the handful of people predicting that they would lead to trouble roundly ignored by the vast number of mortgage retailers, city traders and board members who were making record-breaking amounts of easy money until the unfettered bonus culture that had infiltrated the major lending institutions finally drowned in its own greed.
Having had their fingers badly burnt and tightened up their lending criteria in recent years, it’s now extremely difficult for a self-employed person to benefit from enhanced income multiples. A minimum of 2 years’ accounts or self-assessment returns are required as income proof for the lender. However, if you take a canny, disciplined approach it need not be too bleak.
Kerry recommended that prospective homeowners with their own businesses try the following:
Save as much cash as you can towards a deposit
The more deposit you can save and put down the better. It will strengthen your mortgage application and will often benefit from increased lending amounts and much more favourable deals. This is due to the fact that there is less risk to the lender.
Use a mortgage professional to arrange your mortgage
Each lender will use different elements of your income in different ways and some will exclude portions of it all together. For example, many lenders will not include dividends as part of your income but luckily some will. This can often make up a large chunk of a person’s earnings so they can benefit from lower taxation on this amount. Your mortgage adviser will research the market place and find the lender with the most favourable criteria for your individual circumstances.
Keep your nose clean!
In many cases the underwriter will want to see a minimum of 3 months full personal and business bank statements and in some unfortunate cases even 6 months’ worth. Ensure that you avoid incurring charges for going over your overdraft limit and try to avoid reaching this limit altogether. They want to see good account conduct and that you are handling your money in a responsible manner.
A joint application will make it easier to get the amount you need as you can get 4 times joint income.
It really is a great time to buy. House prices are low, and if you can be a tough negotiator you could easily get your hands on a bargain. Mortgage rates are very attractive in comparison to what they were too, so heed the above advice and make sure you don’t miss out.