According to research, when it comes to securing a mortgage, large numbers of self-employed workers feel disadvantaged by their employment status. Many fear they’ll never own a home.
If you are in this situation, mobile banking service Tide has provided some advice on what you can do to win lenders over.
Sarah Young, VP of member engagement at Tide said: “Although many lenders favour more ‘traditional’ borrowers, getting a mortgage as a self-employed business owner is absolutely achievable.
“Lenders will class you as self-employed if you own 20% to 25% or more of a business and generate the majority of your income from that business.
“You can be a sole trader, director of a limited company, member of a partnership or a contractor to be classed as self-employed.
“If you’re self-employed but also earn money through PAYE, it’s important to make the lender aware of your income and ask them to take all earnings into account”.
Here are some things you can do before getting a mortgage to prepare:
Get your accounts in order
To prove your income when applying for a mortgage, the majority of lenders will ask for at least two to three years of certified accounts
Certified accounts are books that have been prepared by a qualified chartered accountant, so an important first step is to find a trusted accountant.
Maintain a good credit score (both personal and business)
Keep credit applications to a minimum and also keep up with payments and pay off any outstanding bills. Clear any outstanding invoice, close any unused credit accounts and get on the electoral roll.
Stay on budget
Lenders will carry out an affordability assessment which looks at your incomings and outgoings (bills, loan payments, car payments, monthly shopping spend, etc) to ensure you can afford the repayments.
In the months before applying for a mortgage, try to keep monthly outgoings to a minimum. Cut back on anything that may be classed as a lavish spend unless it’s required
Speak to a mortgage adviser
An adviser’s market expertise and ability to find the best deals can reduce your chances of being rejected and thus prevent you from raking up failed credit applications.
Save up a large deposit
The bigger your deposit, the better your chances of securing the loan you need.
Maintain good business relationships
Lenders expect to see a good track record of work and will look favourably on any guaranteed work you have planned in the future
If your business involves providing a service to clients, look at ways to secure long-term contracts or retainer arrangements. These will prove to a lender that you’re able to maintain or increase your income going forward and give assurances that you’re a safe choice.
Sarah added: “When comparing mortgage lenders, you should take several factors into consideration. These include fixed rates, interest rates, percentage required to put down upfront, the ability to re-mortgage, the flexibility to under- or overpay need be, maximum and minimum contract length, and so on.
“It’s important to find a plan that will work best in both the short and long term.”
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