How to solve the self-employed person’s mortgage conundrum
A recent survey from mortgage lenders Aldemore has found that two-thirds of self-employed people are rethinking their status. This is because they‘re worried it will stop them from getting a mortgage.
Their problem is not a lack of deals, but the extra hurdles that self-employed people have to overcome in order to borrow money. This they may consider to be insurmountable.
Lenders want to make money and they would be daft if they weren’t interested in serving the country’s self-employed workers. Now according to the Office for National Statistics, now number just under five million.
On the other hand, they have to protect themselves because self-employed people are vulnerable to going out of business. This will then take the lender’s investment with them.
In this respect, they are similar to those with an adverse credit history. These people also struggle to get a good deal and can also feel that the system is against them.
Nothing could be further from the truth. However, the complexity of their situation makes it extremely difficult to secure a mortgage. Especially if they approach high street lenders or source a deal unaided.
In some cases, it is impossible. This is because many banks will only lend money if an application has come via a mortgage adviser.
It is, therefore, vital to contact an independent adviser, but there are a few steps you can take beforehand, such as saving as big a deposit as you can – if you can get a gifted deposit from a family member do so – and paying off debts to improve your credit score.
You should also straighten out your business finances and also prepare to hand over your company accounts.
Historically, lenders have required three years’ worth of accounts but some will now accept two years and even just one year. In return, they may demand a bigger deposit or ask you to prove you have a good track record of getting regular work. It may also help if you are still in the same line of work as you were when employed.
Your accounts should be up to date and prepared by a suitably qualified accountant. While professional advice will also help you to overcome one of the biggest conundrums facing self-employed people – how can you minimise your taxable income whilst convincing a lender that you can afford to buy your dream home?
This is where many self-employed people come unstuck. But this is where advisers can use their industry knowledge. They do this to source those lenders who will take retained profits into account. This will help with how much money they are willing to lend.
I have merely scratched the surface here but with so much to consider, it isn’t easy to see why some self-employed people might give up on getting a mortgage. This would be a shame, because, speaking from experience, the rewards of owning your own home and your own business are well worth overcoming those extra hurdles.