Starting your research on mortgages can be a scary time, there’s lots to learn before you apply. Research has shown that around 35% of people assume they aren’t eligible or don’t earn enough, and 33% find the process confusing and stressful.
In the UK, there are 4.8 million self-employed people. Many of these think that because their income isn’t regular, they aren’t eligible for a mortgage. It’s best to not discount yourself straight away. In this blog we cover how self-employed people can improve their changes of being accepted for a mortgage, and tips for first-time buyers.
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Improve your chances
If you’re self-employed and concerned you won’t get accepted for a mortgage, take a look at these tips to increase the likelihood you’ll be approved:
- Contact a mortgage adviser: each lender will have different criteria to meet for their mortgage acceptance. They will have the knowledge and ability to find a suitable mortgage lender for you
- Look at your credit file: check for any detrimental entries
- Register to vote: if you aren’t already registered, do it as soon as you can. If you’re not sure, check with your local council
- Check your accounts: ideally you should have an immaculate credit record in order to have the most competitive mortgage rates open to you. Ensure everything is paid on time, and set up direct debits for everything you can as this is good practise
- Never use payday loans: people usually resort to payday loans when they’re financially struggling, therefore this doesn’t look good on your records. If there is a recent use of a payday loan, many lenders will decline just because of this
- Limit credit checks: it’s well known that your credit score can drop if you run several checks in a short space of time. However it’s perhaps less well known that insurance comparison sites run multiple checks on your credit
- Don’t hit the limit on your credit card: if you have an outstanding balance, spread it between two cards instead of having one at its limit. The more you use your credit card the more it will lower your credit score
- Pay your credit off fully: making minimum payments off your credit cards can again suggest financial problems. If you’re able, set up your credit card so it automatically pays itself off in full every month
- Prepare your deposit: get your deposit money together as early as you can, especially if family is helping you
- Speak to your accountant: if you’re using business funds, you should talk to your accountant. It’s best to take regular withdrawals rather than one lump sum. A large single withdrawal could cause delays while the accountant confirms it’s not detrimental to the business
- Prepare your documents: Mortgage lenders will ask for a selection of documents so it’s best to have it all ready. This includes ID, proof of address, limited company accounts, tax returns, bank statements, life insurance and more
- If you’re a contractor: you’ll need to provide the last 12 months of contracts, fully signed. They need to clearly state your daily rate
- Receive a mortgage agreement in principle: estate agents prefer to hear you have an agreement in principle, some won’t let you make an offer or even view if you don’t have one. It shows the maximum loan you can borrow so you know which properties you can afford and therefore view
Self-employed first-time buyer?
If you’re a first-time buyer it makes the whole process even more confusing and stressful. This can be especially true if you’re self employed or a contractor. Here we provide a few extras that you’ll need to show mortgage lenders:
If you’re a director of a limited company, at a minimum you need to provide your lender with the most recent year’s company accounts or personal tax return. Sometimes this won’t be enough, as you may find your mortgage lender asks for 2 or 3 years’ accounts.
As a sole trader, your mortgage lender will need a year’s worth of finalised accounts (at least) or an SA302 from HMRC dated fewer than 18 months old.
Contractors and freelancers
Are you a freelancer or contractor working through a limited company? If this is you, you’ll need to provide your lender with your current contract plus sometimes any contracts over the past 12 months. If this is not possible for whatever reason, you should be able to use your personal tax returns or company accounts.
I began writing for Property Press Online in October 2019. Particular areas of interest are housing market news and new developments in the market.