As we reported back in October last year, one in eight of the self-employed are rejected for a mortgage. With a total of 4.75 million people registered self-employed, that’s more than half a million people who are missing out on either remortgaging or taking their first step onto the property ladder.
But with lenders gradually changing criteria to appease self-employed mortgages off the back of the Mortgage Market Review back in 2014, why are so many applicants still being rejected?
It’s fair to say that it can be more difficult to obtain a self-employed mortgage as opposed to a standard one. There are many hurdles to a self-employed application – the main one being able to prove future income to make monthly repayments – but it’s important to note that these hurdles aren’t too high for the self-employed to jump over.
Those seeking a self-employed mortgage need to get the right advice before making their application. It’s about being knowledgeable of the criteria each lender sets, and tailoring an application to meet their demands.
Mainstream lenders are slow to react to the change in the employment market, but there are many alternative lenders out there who are adapting their criteria to appease self-employed mortgage candidates.
Giving support to self-employed business owners
In 2016, Kent Reliance altered its criteria for self-employed applicants, and now consider applicants with just one year of trading, instead of the standard three.
More recently, Aldermore reduced its minimum account criteria from two years to just one. The company also stated it would consider retained profit for business owners, which will significantly increase an applicant’s borrowing ability.
Newcastle Intermediaries has taken it one step further, working with mortgage brokers Sesame, Openwork, Legal & General Mortgage Club, Mortgage Advice Bureau, Intrinsic, First Complete, Pink Network, The Mortgage Alliance, Premier Mortgage Services, SimplyBiz Mortgages, Brilliant Solutions and Tenet to bring a complete range of self-employed mortgage products to the market.
“We’re continuing to provide much needed support to a growing group of self-employed individuals with the launch of this revised range of mortgages,” Steve Carruthers, head of mortgage distribution at Newcastle Intermediaries, said.
“We appreciate that one size doesn’t fit all and it can be difficult to find a lender that truly understands the needs of self-employed clients. That’s why our policy aims to make the application process much easier.”
Why getting the right advice is crucial
Although it’s great news that mortgage lenders are starting to relax their criteria for obtaining a self-employed mortgage, there’s still no guarantee they will be able to accept an applicant for every mortgage they offer.
For this reason, it’s a good idea to approach a mortgage advisor with experience in the self-employed mortgage market.
Not only will they be aware of the best lenders and best mortgage deals for the self-employed, but they will also be able to match the position to a lender’s specific criteria. No lender is the same, so advisors will be able to shop around to suit individual needs.
With criteria matching comes groundwork, so prior to an application, there are simple steps a candidate can take to help gain mortgage approval.
Accounts need to be up-to-date, credit needs to be healthy and personal spending needs to be balanced. These easy steps will make for a more professional application and are more likely to get a self-employed business owner approved.
The demand for self-employed mortgages is evident, and so is the opportunity. The self-employed need to explore their options, and speaking to a mortgage advisor, is the best action they can take to ensure success.
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this is a great article, i have been specializing in Self-employed mortgages for 12 months.
The most frustrating thing i see if articles that state you must have 3 years trading.
This is a huge misconception. it is possible to get a mortgage with 1 years accounts. It helps having previous experience within the trade for sure.
The biggest thing i find for self-employed is helping business owners with limited companies as on the high street lenders will consider salary and dividends, however a lot directors do not withdraw their full net profit and therefore it is more advantageous to use a lender that will consider retained net profit. This can also be a huge advantage for reducing over all tax bills.
Great article Joanna